"Your Money or Your Life" Weekend Economists April 9-11, 2010

I'm sorry, I made delicious turkey dinner and completely forgot it was Friday!

This weekend we celebrate the comic genius of Jack Benny (patron saint for many of us commonly viewing this series),

"(February 14, 1894 – December 26, 1974), born Benjamin Kubelsky<1> was an American comedian, vaudevillian, and actor for radio, television, and film. Widely recognized as one of the leading American entertainers of the 20th century, Benny played the role of someone comically "tight" with his money, insisting on remaining 39 years old despite his actual age, and often playing the violin badly.

Benny was known for his comic timing and his ability to get laughs with either a pregnant pause or a single expression, such as his signature exasperated "Well!" His radio and television programs, tremendously popular in the 1930s, 1940s, 1950s, and 1960s were a foundational influence on the situation comedy. Dean Martin, on the celebrity roast for Johnny Carson in November 1973, introduced Benny as "the Satchel Paige of the world of comedy."

Early life

Jack was born February 14, 1894, in Chicago, Illinois, and grew up in neighboring Waukegan, Illinois. He was the son of Meyer Kubelsky and Emma Sachs Kubelsky. Meyer was a Jewish saloonkeeper, later to become a haberdasher, who had emigrated to America from Poland.<2><3><4><5><6> Emma had emigrated from Lithuania. Benny began studying the violin, an instrument that would become his trademark, when he was just six, with his parents' hopes that he would be a great classical violinist. He loved the violin, but hated practice. By age 14, he was playing in local dance bands as well as in his high school orchestra. Benny was a dreamer and a poor student and he was expelled from high school. He did equally badly in business school and at his father's trade. At age 17, he began playing the instrument in local vaudeville theaters for $7.50 a week.<7>

In 1911, Benny was playing in the same theater as the young Marx Brothers, whose mother Minnie was so enchanted with Benny's musicianship that she invited him to be their permanent accompanist. The plan was foiled by Benny's parents, who refused to let their son, then 17, go on the road, but it was the beginning of his long friendship with Zeppo Marx. Benny's wife Mary Livingstone was a distant cousin of the Marx Brothers.

The following year, Benny formed a vaudeville musical duo with pianist Cora Salisbury, a buxom 45-year-old widow who needed a partner for her act. This provoked famous violinist Jan Kubelik, who thought that the young vaudeville entertainer with a similar name (Kubelsky) would damage his reputation. Under pressure from Kubelik's lawyer, Benjamin Kubelsky agreed to change his name to Ben K. Benny (sometimes spelled Bennie). When Salisbury left the act, Benny found a new pianist, Lyman Woods, and re-named the act "From Grand Opera to Ragtime". They worked together for five years and slowly added comedy. They even reached the Palace Theater, the "Mecca of Vaudeville", but bombed. Benny left show business briefly in 1917 to join the Navy during World War I, and he often entertained the troops with his violin playing. One evening, his violin performance was booed by the troops, so with prompting from fellow sailor and actor Pat O'Brien, he ad-libbed his way out of the jam and left them laughing. He got more comedy spots in the revues and was a big hit, and earned himself a reputation as a comedian as well as a musician.

Shortly after the war, Benny started a one-man act, "Ben K. Benny: Fiddle Funology".<7> But then he heard from another lawyer, this time that of Ben Bernie, another patter-and-fiddle performer who also threatened to sue. So Benny adopted the common sailor's nickname Jack. By 1921, the fiddle became more of a prop and the low-key comedy took over.

Benny had several romantic encounters, including one with a dancer, Mary Kelly, whose devoutly Catholic family forced her to turn down Benny's proposal because he was Jewish. Benny was introduced to Mary Kelly by Gracie Allen. Some years after their split, Kelly resurfaced as a dowdy fat girl and Jack gave her a part in an act of three girls: one homely, one fat and one who couldn't sing. This lasted until, at Mary Livingstone's request, Mary Kelly was let go.

In 1922, Jack accompanied Zeppo Marx to a Passover seder where he met Sadye (Sadie) Marks, whom he married in 1927 after meeting again on a double-date. She was working in the hosiery section of the Hollywood Boulevard branch of the May Company and Benny would court her there.<7> Called on to fill in for the "dumb girl" part in one of Benny's routines, Sadie proved a natural comedienne and a big hit. Adopting Mary Livingstone as her stage name, Sadie became Benny's collaborator throughout most of his career (according to Fred Allen's book on vaudeville, Much Ado About Me, it was a custom for vaudeville comics to put their wives into the act once married, in order to save on expenses and so that the marital partners could keep an eye on each other). They later adopted a daughter, Joan."

http://en.wikipedia.org/wiki/Jack_Benny

That's how comedy was done, folks. That's how America was built. That's what nobody does anymore.

Now the best humor in our land is political and economic, because our politics and economics today is a total joke.

Beach First National Bank, Myrtle Beach, South Carolina, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Bank of North Carolina, Thomasville, North Carolina, to assume all of the deposits of Beach First National Bank.

The seven branches of Beach First National Bank will reopen on Monday as branches of Bank of North Carolina...As of December 31, 2009, Beach First National Bank had approximately $585.1 million in total assets and $516.0 million in total deposits. Bank of North Carolina did not pay the FDIC a premium for the deposits of Beach First National Bank. In addition to assuming all of the deposits of the failed bank, Bank of North Carolina agreed to purchase essentially all of the assets.

The FDIC and Bank of North Carolina entered into a loss-share transaction on $497.9 million of Beach First National Bank's assets. Bank of North Carolina will share in the losses on the asset pools covered under the loss-share agreement....The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $130.3 million. Bank of North Carolina's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Beach First National Bank is the 42nd FDIC-insured institution to fail in the nation this year, and the first in South Carolina. The last FDIC-insured institution closed in the state was Victory State Bank, Columbia, on March 26, 1999.

:yourock: in bank failures. Keep up the great work!

maybe too much chocolate in the FDIC Easter baskets?

:shrug: Maybe Georgia is running out of banks to close.

A master of the carefully timed pregnant pause, Benny and his writers used it to set up what is popularly (but incorrectly) believed to be the longest laugh in radio history. It climaxed an episode (broadcast March 28, 1948) in which Benny borrowed neighbor Ronald Colman's Oscar and was returning home when accosted by a mugger (voiced by comedian Eddie Marr). After asking for a match to light a cigarette, the mugger demanded, "Don't make a move, this is a stickup. Now, come on. Your money or your life." Benny paused, and the studio audience—knowing his skinflint character—laughed. The robber then repeated his demand: "Look, bud! I said your money or your life!" And that's when Benny snapped back, without a break, "I'm thinking it over!" This time, the audience laughed louder and longer than they had during the pause.

The punchline came to Benny staff writers John Tackaberry and Milt Josefsberg almost by accident. Writer George Balzer described the scene to author Jordan R. Young, for The Laugh Crafters, a 1999 book of interviews with veteran radio and television comedy writers:

... they had come to a point where they had the line, "Your money or your life." And that stopped them... Milt is pacing up and down, trying to get a follow... And he gets a little peeved at Tack, and he says, "For God's sakes, Tack, say something." Tack, maybe he was half asleep---in defense of himself, says, "I'm thinking it over." And Milt says, "Wait a minute. That's it." And that's the line that went in the script... By the way, that was not the biggest laugh that Jack ever got. It has the reputation of getting the biggest laugh. But that's not true.

The actual length of the laugh the joke got was five seconds when originally delivered and seven seconds when the gag was reprised on a followup show. In fact, the joke is probably not so memorable for the length of the laugh it provoked, but because it became the definitive "Jack Benny joke"—the joke that best illustrated Benny's "stingy man" persona. The punchline—"I'm thinking it over!"—simply would not have worked with any other comedian but Benny.

he was a generous soul, both with his time and money. He would help new talent get started and he would let other talent get the laugh at his expense. He was often protective of his sidekick, Rochester (Eddie Anderson). This led to conflicts when they traveled in segregated America. "According to reporter Fredric W. Slater, Rochester was denied a room at the hotel that Benny and his staff were planning to staying in Saint Joseph, Missouri. When it was announced that Anderson could not stay there, Benny replied "If he doesn't stay here, neither do I." The hotel eventually allowed Anderson to remain as a guest. Eddie Anderson (Rochester) was paid well invested wisely and became very wealthy. He proved to be as generous as his "boss".

FYI For Halloween, instead of giving out candy, Benny was known for giving out silver dollars to all the children that came to his door.
for a picture of Jack's house and other celebs-

www.seeing-stars.com/ImagePages/JackBennysHouse.shtml#{%22id%22:0,%22d%22:<{%22s%22:%22__ack%22,%22id%22:0}>}%23{%22id%22:0,%22d%22:<{%22s%22:%22__ack%22,%22id%22:0}>}

refused it. He preferred the myth!

http://link.ft.com/r/YIQXNN/8A4NAF/87I64/WLCAK3/2605QN/CM/t


Greece’s four largest banks are seeking government support to help counter a liquidity squeeze resulting from a significant flight of deposits in the first two months of the year.

George Papaconstantinou, finance minister, said on Wednesday that the banks “have asked for access to the remaining funds of the support plan” – a €28bn ($37bn, £24.5bn) government package that was put together during the 2008 global credit crunch.

The banks’ request, which came as spreads on 10-year Greek bonds remained at record levels for a second day, flagged up concerns about the growing impact of the country’s debt crisis on the financial sector.

Local savers transferred about €10bn of deposits – equal to about 4.5 per cent of the total in the banking system – out of Greece in the first two months of the year, according to the central bank.

The transfers reflected “anxiety among wealthy Greeks about keeping assets here, given the increasing uncertainty”, said an Athens-based private banker.

Many savers had chosen to move funds to their banks’ subsidiaries outside Greece, including Cyprus and Luxembourg, rather than switch to foreign institutions. Others had transferred funds to local subsidiaries of foreign banks, the banker added.

“We would expect these funds to return swiftly once the crisis is resolved,” he said.

Several bankers dismissed rumours of savers withdrawing large-denomination notes such as €200 and €500 to put in safe-deposit boxes or hold in cash as “mattress money”.

Greece’s four biggest lenders – National Bank of Greece, EFG Eurobank, Alpha Bank and Piraeus Bank – have asked for access to about €14bn in loan guarantees and €3bn of special bonds that could be used as collateral to borrow from the European Central Bank.

Because of high fees and administrative hurdles to disbursement, the funds had been left untapped while Greek banks were still able to raise money on international markets, one banker said.

Greek banks have increased their dependence on the ECB for funding after losing access to the international “repo” and wholesale markets because Greek sovereign bonds are seen as too risky to be accepted as collateral.

“The market has closed to Greek borrowers, even for very short-term ‘repos’ of a couple of weeks,” said a senior Greek banker.

Greek banks’ funding from the ECB, which still accepts the country’s bonds as collateral, jumped from €40bn to €65bn in the first quarter, according to IOBE, an Athens think-tank.

Moody’s, the ratings agency, last week downgraded all four banks by one notch, saying Greece’s deteriorating economic outlook would “place additional pressure on the sector’s already weakened assets and profitability”.

All four lenders reported a 30-40 per cent fall in 2009 full-year profits as Greece moved into recession and lending by subsidiaries in south-east Europe declined.

Share prices of Greek banks on the Athens stock exchange fell by 4 per cent on Wednesday, on top of a 3 per cent decline on Tuesday. The decline was triggered by news that the banks had resorted to applying for the remainder of the state package, analysts said.

SIC TRANSIT GLORIA MONEY

http://www.nakedcapitalism.com/2010/04/is-the-bundesbank-against-an-imf-enabled-bailout-of-greece.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


It seems the wheels are coming off the European experiment...we had a huge meltdown in Greek bonds. Media reports suggest that a recent article in German daily Frankfurter Rundschau are what triggered the latest selloffs in Greek sovereign debt. This article leaked portions of a Bundesbank report which demonstrated its vehement opposition to the joint EU-IMF bailout cobbled together by Angela Merkel and Nicholas Sarkozy.

The Bundesbank paper goes as far as to suggest such an aid package is unconstitutional. However, it also indicates that it fears the IMF will be less stringent than the Eurogroup, something that flies in the face of all logic. To me this suggests an institutional bias against a bailout for which the internal memo provides intellectual cover. Clearly, this level of institutionalized opposition to a bailout in Germany makes a bailout less likely, even with IMF involvement.

In the interest of bringing you this perspective, I have translated a portion of the article below:

The German Bundesbank picked apart the EU rescue plan for Greece which was largely designed by the German federal government. According to an internal document which the Frankfurter Rundschau has obtained, the high priests of the Stability and Growth Pact fear that the International Monetary Fund (IMF) would require less financial discipline of the Greeks than would the Eurogroup.

"This decision by the heads of state and government of the Eurogroup, which, to our knowledge was made without the involvement of relevant central banks, bring problems with it, which cannot be underestimated from the point of view of policy stability," says the board document. The Bundesbank confirmed the document’s existence but tried to play it down; it was an unauthorized paper which a mid-level functionary out together as a first reaction to the decision. "The process to form an official opinion has not yet taken place," said a spokesman.

The paper rips into the generally public-praised rescue operation for Greece with the intervention of the IMF. This solution leads neither to adherence of the Maastricht treaty nor to a situation in which no German money would flow to Athens. On the contrary, in the end the Bundesbank will deliver the euros with which the IMF helps Greece.

The Bundesbank criticises the involvement of the IMF also because the days are gone in which the Fund considered fiscal discipline of the highest virtues for policy and forced aid-seeking countries into a strict privatization course. Ever since the Frenchman Dominique Strauss-Kahn took over the post of Executive Director at the end of 2007, the IMF has changed course. "The extreme market orientation has been abandoned," says finance professor Marcel Tyrell of the Zeppelin University in Friedrichshafen.

I should stop here because it goes on in this fashion for some time. I think you get the picture. Regardless of whether a Sachbearbeiter (mid-level functionary) wrote this paper, it accurately reflects the view of many in German policy circles.

IS THIS REVENGE FOR THE TREATY OF VERSAILLES?

LOTS OF LINKS IN ORIGINAL ARTICLE

Yay! I'm number 2! I'm number 2!

I love Jack Benny. While we're here: please consider my appreciation for George Gobel. 2¢

Congrats on #2! We try harder, remember those days?

My memories of Mr. Gobel rest so heavily with the Tonight Show.

A Young Johnny Carson Appears on the Jack Benny Show and Gives Jack a Hard Time!
http://video.google.com/videoplay?docid=-6002847573874195536#

That's the trouble with being a morning person!

Just when did I lose control of this show-Gobel, Martin, Hope, and Carson. Watch Dean Martin and his cigarette.

www.youtube.com/watch?v=vsEkR5WFlw0

The tuxedo joke is a classic. And Dean Martin disposing his ashes on anything belonging to George Gobel is brilliant. Thanks for finding this.

http://en.wikipedia.org/wiki/Jack_Benny#.22Your_money_or_your_life.22

Sharing a musical interlude? :7

Economy's in Hell.

Somebody finish this doggerel for me, please?

http://www.chinadaily.com.cn/opinion/2010-04/08/content_9703019.htm


US Treasury Secretary Timothy F. Geithner embarked on a previously unscheduled trip to China, which was seen by US media as a sign of improving economic relations between US and China.

New York Times April 7

The unexpected meeting between Mr. Geithner and the vice prime minister, Wang Qishan, comes during a flurry of diplomatic activity between Washington and Beijing meant to avoid a confrontation on China's policy of keeping its currency, the renminbi, at a nearly fixed exchange rate.

Economists said they did not expect the visit by Mr. Geithner to Beijing to produce any immediate breakthroughs on currency policy.

Chinese officials have gone out of their way to signal that they will not make any policy shift that might suggest to their own people that they were backing down in the face of American pressure.

Related readings:
Geithner's visit signals warming ties Geithner heads to Beijing for talks
Geithner's visit signals warming ties Geithner's report delay will pay dividends
Geithner's visit signals warming ties Geithner: US cannot force China to change exchange rate
Geithner's visit signals warming ties Geithner team up for Sino-US talks
AP April 8

The decision to hold such a high-level encounter suggested Washington and Beijing are moving toward settling the currency dispute, which has threatened to overshadow cooperation on the global economy, Iran's nuclear program and other issues.

In another sign of warming ties, Chinese President Hu Jintao is due to hold talks with President Barack Obama during an April 12-13 visit to Washington for a nuclear security summit.

Bloomberg April 8

Geithner's trip comes four days after he postponed an April 15 deadline for a semiannual review of the currency policies of major US trading partners.

"The US administration was understandably concerned that we were headed toward a very slippery slope,"said Stephen Roach, chairman of Morgan Stanley Asia Ltd., in a Bloomberg Television interview yesterday. "If we had held to the April 15 deadline, and gone out with a currency manipulation verdict on China, that could have unleashed a very dangerous chain of events."

Roach said Geithner's visit to Beijing is a "very encouraging"development that offers an "olive branch"to China ahead of a series of meetings. Chinese President Hu Jintao is scheduled to visit Washington next week for talks with President Barack Obama, and the US and China also are headed toward their annual bilateral economic meetings in May.

Washington Post April 8

The Obama administration is hoping that talks on Thursday will advance a broader conversation about China's place in the emerging world economic order, a discussion that might focus in the short term on technical issues such as exchange rates but is rooted in deeper concerns.

The currency issue is only a proxy for a complex set of issues, including Asian regional trade, China's mounting stocks of foreign reserves, the country's still comparatively closed markets and its importance in ensuring global growth, that administration officials and other analysts say they hope will be addressed in coming months.

"We are now at a point where the worst of the economic crisis may be behind us," a senior administration official said in advance of Geithner's meeting with Wang. "Now is the time to begin to more deeply engage," over long-term changes in the relationship between the countries.

U.S. Treasury Secretary Timothy F. Geithner embarked on a previously unscheduled trip to China as the world’s third-largest economy weighs letting its currency appreciate.

Geithner left India for a meeting with Chinese Vice Premier Wang Qishan in Beijing today, Treasury spokesman Andrew Williams told reporters in Mumbai. The meeting will be closed to the press, and Geithner has no other scheduled events, he said.

Geithner is facing demands from Congress to label China a currency manipulator for keeping the value of the yuan at about 6.8 to the dollar, which some U.S. lawmakers say gives unfair advantage to Chinese exporters. His trip comes four days after he postponed an April 15 deadline for a semiannual review of the currency policies of major U.S. trading partners.

Full: http://www.bloomberg.com/apps/news?pid=20601087&sid=a4bJRu5M53eQ&pos=5

MORE LIKELY, ANY TIME ONE GOES TO INDIA, ONE MUST INCLUDE MAINLAND CHINA TO KEEP THE PEACE, AND NEVER GO TO TAIWAN!

Pretty good chance someone would have smacked him with it.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJIJTE.YpIzM&pos=3

U.S. Treasury Secretary Timothy F. Geithner is putting the Group of 20’s enhanced power to the test as he tries to prod China into revaluing the yuan.

Seven months after the G-20 replaced the G-7 as the steering committee to rebalance the world economy, Geithner is calling such bodies “the best avenue for advancing U.S. interests” on China’s currency. G-20 finance chiefs gather in Washington in two weeks and Geithner will meet Chinese Vice Premier Wang Qishan tomorrow in Beijing.

The tactical shift away from bilateral campaigning forces exchange-rate policy onto the G-20’s agenda for the first time since its leaders began meeting in November 2008. Success or failure may determine whether the forum can make the global economy more crisis-proof, with splits over bank regulation already suggesting it is too unwieldy to achieve consensus.

“If all these countries come together in the context of the G-20, I think that will be hard for China to ignore,” Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington, told Bloomberg Television yesterday. “If the U.S. beats up on China, China can say ‘the U.S. is a bully.’ But if the U.S. assembles a broader coalition, that’s going to be more difficult for China to fend off.”

Investors’ Bets

The Chinese government has ignored threats from U.S. lawmakers for almost two years, keeping its currency at about 6.83 to the dollar to aid exporters. Yuan forwards are trading near the highest level in 11 weeks on speculation China may allow the yuan to appreciate to limit inflation, which reached a 16-month high of 2.7 percent in February.

Twelve-month non-deliverable forwards traded at 6.6395 per dollar as of 5:30 p.m. in Hong Kong, reflecting bets the yuan will climb 2.9 percent from the spot rate of 6.8256, according to data compiled by Bloomberg.

Geithner said April 3 that his decision to delay a biannual report on exchange-rate policies was partly to allow the yuan to be discussed at forums such as the G-20, whose finance ministers and central bankers meet in Washington in the week of April 19. Leaders convene in Canada in June and in South Korea in November.

In an interview with Bloomberg Television today, Geithner said he expects China will embrace a bigger international role for its currency as part of a “necessary adjustment” as it moves toward a more market-based economy.

“They’re becoming more open to the world, and with that, you’re going to see the currency take on a broader role internationally,” he said in Mumbai.

‘Ups the Pressure’

Geithner’s strategy “ups the pressure on the G-20 to make progress on the currency issue,” said Tim Adams, a former U.S. Treasury undersecretary. If the group takes up the challenge, “currency adjustment may test the G-20’s ability to succeed as the global economy’s principal governing council,” said Adams, now a managing director at the Lindsey Group, a Fairfax, Virginia-based investment consultancy.

International lobbying may take time to work if history is any guide. It took almost two years of G-7 pressure for China to loosen the yuan’s peg to the dollar in July 2005. After G- 20 leaders united a year ago in London to craft a $1.1 trillion plan to aid the world economy, splits are appearing in their agenda over how to regulate banks and whether to impose a tax on financial companies.

‘Pointing Fingers’

Even as China’s economic expansion has fanned inflation concerns, Premier Wen Jiabao is rebuffing foreign calls for a stronger yuan after keeping it little changed since July 2008. The currency isn’t undervalued and countries should avoid “pointing fingers at each other,” Wen said March 14.

Critics of China’s policy have nevertheless become more vocal, with French President Nicolas Sarkozy and South Korean President Lee Myung Bak among five leaders to last week tell their G-20 colleagues that currencies should be taken into account in seeking “strong, sustainable and balanced growth.”

Sarkozy has already said global “currency disorder” will be on the agenda when he holds the G-20 chairmanship next year.

“The trade flows of many countries, not just the U.S., are affected by an undervalued yuan,” said Daniel Price, who organized the November 2008 G-20 summit for President George W. Bush and is now a partner at law firm Sidley Austin LLP in Washington. “Secretary Geithner is entirely correct to reframe the currency issue as a multilateral concern to be addressed through the G-20 rather than a bilateral U.S.-China issue that tends to fall prey to heated rhetoric on both sides.”

Ducked Topic

The G-20 ducked the topic of exchange-rate values at previous summits, even after leaders agreed in Pittsburgh last September to pursue policies that make the world less reliant on U.S. demand and Chinese savings.

That was the result of needing to bring China into the international policy-making fold amid the worst global recession since World War II, said Thomas Stolper, a currency strategist at Goldman Sachs Group Inc.

“China played a leading role in the G-20 and was widely commended for its anti-cyclical fiscal policy, which easily outweighed the already re-emerging concerns linked to the new peg,” London-based Stolper said in a March 30 report to clients. “But now, after further post-crisis normalization and in light of the ongoing weakness in the U.S. labor market, the political focus on China has started to grow notably.”

To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

In trying to explain his successful life, Benny summed it up by stating "Everything good that happened to me happened by accident. I was not filled with ambition nor fired by a drive toward a clear-cut goal. I never knew exactly where I was going."

Ding dong dell, Timmy's in the well,
Economy's in hell,
the middle class fell.

but I would edit it as

Ding dong dell, Timmy's in the well,
the middle class fell
and the Economy's in hell.


Does that pass Demeter?
Rap Master Anne

Ding Dong bell, Timmy's in the well!
Who threw him in? Little Alan Green(span)
Who pulled him out? 300 million taxpayers

We could come up with a SMW version of Mother Goose.

Hey diddle diddle Ben's with a fiddle
the debts gone up to the moon,
G Sachs laughed to see such a sight,
as Tim was hocking the spoons

In 1929, Benny's agent Sam Lyons convinced MGM's Irving Thalberg to catch Benny's act at the Orpheum Theatre in Los Angeles. Benny was signed to a five-year contract and his first film role was in The Hollywood Revue of 1929. His next movie, Chasing Rainbows, was a flop and after several months, Benny was released from his contract and returned to Broadway in Earl Carroll's Vanities. At first dubious about the viability of radio, by this time Benny was eager to break into the new medium. In 1932, after a four-week nightclub run, he was invited onto Ed Sullivan's radio program, uttering his first radio spiel "This is Jack Benny talking. There will be a slight pause while you say, 'Who cares?'..."<7>

Benny had been only a minor vaudeville performer, but he became a national figure with The Jack Benny Program, a weekly radio show which ran from 1932 to 1948 on NBC and from 1949 to 1955 on CBS, and was consistently among the most highly rated programs during most of that run.<8><9>

With Canada Dry Ginger Ale as a sponsor, Benny came to radio on The Canada Dry Program, beginning May 2, 1932, on the NBC Blue Network and continuing there for six months until October 26, moving the show to CBS on October 30. With Ted Weems leading the band, Benny stayed on CBS until January 26, 1933.

Arriving at NBC on March 17, Benny did The Chevrolet Program until April 1, 1934. He continued with sponsor General Tire through the end of the season. In October, 1934, General Foods, the makers of Jell-O and Grape-Nuts, became the sponsor most identified with Jack, for the next ten years. American Tobacco's Lucky Strike was his longest-lasting radio sponsor, from October, 1944, through the end of his original radio series.

The show returned to CBS on January 2, 1949, as part of CBS president William S. Paley's notorious "raid" of NBC talent in 1948-'49. There it stayed for the remainder of its radio run, which ended on May 22, 1955. CBS aired repeats of old radio episodes from 1956 to 1958 as The Best of Benny.


Characters

Benny's stage character was a clever inversion of his actual self. The character was just about everything the actual Jack Benny was not: cheap, petty, vain and self-congratulatory. His masterful comic rendering of these traits became the vital linchpin to the Benny show's success. Benny set himself up as the comedic foil, allowing his supporting characters to draw laughs at the expense of his stinginess, vanity, and pettiness. By allowing such a character to be seen as human and vulnerable, in an era where few male characters were allowed such obvious vulnerability, Benny made what might have been a despicable character into a lovable Everyman character. Benny himself said on several occasions: "I don't care who gets the laughs on my show, as long as the show is funny." In her book, Benny's daughter Joan said her father always said it doesn't matter who gets laughs, because come the next day they will say, "Remember the Jack Benny Show, last night, it was good, or it was bad." Jack felt he got the credit or blame either way, not the actor saying the lines, so it had better be funny.

The supporting characters who amplified that vulnerability only too gladly included wife Mary Livingstone as his wisecracking and not especially deferential female friend (not quite his girlfriend, since Benny would often try to date movie stars like Barbara Stanwyck, and occasionally had stage girlfriends such as "Gladys Zybisco"); rotund announcer Don Wilson (who also served as announcer for Fanny Brice's hit, Baby Snooks); bandleader Phil Harris as a jive-talking, wine-and-women type whose repartee was rather risqué for its time (Harris and Mahlon Merrick shared the actual musical chores of the show); boy tenor Dennis Day, who was cast as a sheltered, naïve youth who still got the better of his boss as often as not (this character was originated by Kenny Baker, but perfected by Day); and, especially, Eddie Anderson as valet-chauffeur Rochester van Jones — who was as popular as Benny himself.

And that was itself a radical proposition for the era: unlike the protagonists of Amos 'n' Andy, Rochester was a black man allowed to one-up his vain, skinflint boss. In more ways than one, with his mock-befuddled one-liners and his sharp retorts, he broke a barrier down for his race. Unlike many black supporting characters of the time, Rochester was depicted and treated as a regular member of Benny's fictional household. Benny, in character, tended if anything to treat Rochester more like an equal partner than as a hired domestic, even though gags about Rochester's flimsy salary were a regular part of the show. (Frederick W. Slater, newsman of St. Joseph, Missouri, recalled when Benny and his staff stayed at the restricted Robidioux Hotel during their visit to that town. When the desk staff told Benny that "Rochester" could not stay at the hotel, Benny replied, "If he doesn't stay here, neither do I." The hotel's staff eventually relented.)

Rochester seemed to see right through his boss's vanities and knew how to prick them without overdoing it, often with his famous "Oh, Boss, come now!" Benny deserves credit for allowing this character and the actor who played him (it is difficult, if not impossible, to picture any other performer giving Rochester what Anderson gave him) to transcend the era's racial stereotype and for not discouraging his near-equal popularity. A New Year's Eve episode, in particular, shows the love each performer had for the other, quietly toasting each other with champagne. That this attention to Rochester's race was no accident became clearer during World War II, when Benny would frequently pay tribute to the diversity of Americans who had been drafted into service.

Comedian Groucho Marx of the famous Marx Brothers got his first margin call after prices tumbled on Oct. 24, 1929, a date known in history as “Black Thursday.” Groucho, who had invested all of his savings in the stock market, had to give his broker all the cash he had left to keep him from selling his stocks.

But stocks continued to fall, dropping 12.8% on the following Monday, Oct. 28, and nearly another 12% on Oct. 29, Black Tuesday, one of the worst days ever in the stock market. Over six days, the stock market lost nearly one-third of its value—$25 billion in savings disappeared.

As lenders called in loan after loan, more and more shares had to be sold, and the stock market fell further. Like many other investors, Groucho had to come up with still more cash for his broker, and turned to even more borrowing. He borrowed money from a bank. He borrowed against his life-insurance policy. He took a mortgage loan on his home.

‘All the Money I Had’

But even that wouldn’t be enough. His broker sold all his stock, depleting all of Groucho’s savings. “Some of the people I know lost millions,” Groucho Marx wrote in his autobiography. “I was luckier. All I lost was two hundred and forty thousand dollars. I would have lost more, but that was all the money I had.”

http://wsjclassroom.com/archive/02nov/ECON3.htm

This is why the Marx brothers went into movies. Groucho had to rebuild his retirement. Bad for him, good for us.

http://news.yahoo.com/s/ap/20100409/ap_on_bi_ge/us_dow11k

Think Dow 11,000 is a big deal? Think again.

The Dow Jones industrial average briefly hit the milestone Friday for the first time in 18 months before closing at 10,997.

But Wall Street analysts who study key stock index levels say all the attention paid to 11,000 is more like a big distraction. They worry that investors are ignoring another number at their peril: The surprisingly low volume of trading. As stocks have risen over the past year, the volume reflects the vulnerability of a rally riding on the shoulders of relatively few participants.

And that's given pause even to the bulls.

"It worries a lot of us," says Wellington Shields' Frank Gretz, a technical analyst who specializes in pinpointing market levels at which stocks might suddenly rise or fall. He wonders whether the volume signals that the rally could soon peter out, like the big surges that preceded steep declines in the 1930s in the U.S. and in Japan more recently.

Louise Yamada, a 29-year veteran of technical analysis who heads an eponymous firm in New York, says she's not just concerned but confused.

"Why is the market going up?" she asks. "You usually don't see advances without volume."

The widely cited Dow index, which tracks stocks of 30 companies, is up 70 percent from its lows of more than a year ago. The climb has been one of the strongest in history, and it may herald a strong recovery. But it's been propelled by relatively few trades.

The 200-day moving average volume on the New York Stock Exchange is now at 1.2 billion shares, down from 1.6 billion, or nearly 25 percent, a year ago.

In other words, if there is wisdom in crowds, the stock market is getting dumber.

One reason volume is lower: Main Street investors have largely stayed out of the market, abandoning it to hedge funds, pension funds and other professional investors. Last year, individuals, as tracked by mutual fund flows, yanked $14 billion from stock mutual funds.

Bulls argue that the Dow breaching 11,000 might convince ordinary investors that the rally will last. And that will bring a flood of money into the market, pushing indexes higher.

But Janney Montgomery Scott analyst Dan Wantrobski isn't convinced.

"Main Street investors need confidence in the economy more than the Dow at 11,000," he says. "They need a drop in the unemployment rate."

On that front, there are signs of hope.

Last week the Labor Department reported 162,000 jobs were created in March, the most in three years. The unemployment rate was unchanged, at 9.7 percent.

Another boost to the outlook came Thursday from retailers: Sales at stores open at least a year rose 9 percent last month.

And, of course, there are plenty of other indicators of stock market health besides volume.

Technical analysts will make your head dizzy with their talk of "double tops," "double bottoms" and "Fibonacci retracements." Some of them prefer to make the case for a bull market.

For starters, they like that most stocks in various indexes have rallied, and not just a few powerful ones, as is sometimes the case. They also note that nearly nine out of 10 stocks are trading above their 200-day average price — a bullish sign.

Then there's the argument that maybe volume isn't really all it's cracked up to be.

In the last bull market, the trend was completely opposite the one today. The 200-day average daily volume surged to 1.7 billion shares in late 2007, up more than a third from early 2002, as individuals grew more confident in the rally.

As it turns out, they should have sat on their cash. In October 2007, shortly after volume peaked, the market began to collapse. Investors will still be down 22 percent — even if the Dow does eventually close above 11,000.

http://link.ft.com/r/4RNQTT/18V7E7/JQU4J/ZBACCV/HDIQCE/E4/t

The prime minister says the large economies are close to agreeing a global tax on banks that would cost the financial sector billions of pounds a year

WONDER IF/WHEN THE US WILL HEAR ABOUT THIS....

http://www.fool.com/investing/general/2010/03/30/for-banks-its-been-800-days-of-christmas.aspx

(aT THE END OF mARCH) JPMorgan Chase (NYSE: JPM) applied for a $1.4 billion tax refund -- and not because it overpaid. This is part of a little-known rule squeezed into last year's stimulus package.

See, Washington Mutual, which JPMorgan acquired in 2008, made money hand over fist for most of the last decade, lending money to anyone who smiled. Now that this harebrained experiment has failed (literally), WaMu is due a refund on some of the taxes it paid on those profits. Think of it as a reward for screwing up -- stimulus at its finest.

Other industries have exploited this rule, too. But when the story broke, you could almost hear a collective groan: Holy smokes, yet another gift from taxpayers to banks.

Frankly, I wasn't surprised. On top of the infamous TARP bailout and injections from the Federal Reserve, banks have enjoyed dozens of these seldom-noticed gifts since December 2007. That's why I call it 800 days of Christmas.

Here are four more.

1. A conveniently timed short-selling ban
From Sept. 19, 2008 until Oct. 9, 2008, the SEC banned short selling financial stocks. Most at the time assumed this would have no long-term material impact. They were dead wrong.

No one wanted short sales banned more than Morgan Stanley (NYSE: MS) CEO John Mack. On Sept. 17, Mack sent his employees a memo that said, "We're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down." (Surely, it had nothing to do with the firm running out of cash.) Management, Mack wrote, was "taking every step possible to stop this irresponsible action in the market."

That involved pleading for mercy to SEC chairman Chris Cox, who quickly agreed to ban short sales. (Because nothing cures possible market manipulation like actual market manipulation.)

For Morgan Stanley, the timing couldn't have been better. On Sept. 29, the bank sold 21% of its common stock to Mitsubishi Financial for $9 billion. Without the short-selling ban, Morgan Stanley shares would have traded at a lower price, making the transaction more dilutive to existing shareholders, assuming it was doable at all.

Ditto for Goldman Sachs (NYSE: GS). On Sept. 24, the bank sold $5 billion of equity to Berkshire Hathaway (NYSE: BKR-A) (NYSE: BRK-B). The deal included $5 billion of warrants linked to Goldman's then-current common stock price, which was being held up by the short ban. That made raising capital far cheaper than it otherwise would have been.

Within six weeks of the short ban's removal, Morgan Stanley and Goldman's shares plunged 37% and 54%, respectively, so it's hard to claim the ban wasn't a massive boon. Former Treasury Secretary Hank Paulson agrees, writing in his memoir: "We had to give the market a signal that Morgan Stanley and Goldman Sachs weren't going to fail. The SEC's short-selling ban had bought them a grace period." Lucky them.

2. Tweaks to mark-to-market accounting
In April 2009, the Financial Accounting Standards Board (FASB) relaxed mark-to-market accounting rules, making it easier for banks to value toxic assets however they'd like, rather than relying on market prices.

Some say this was a good thing. The market was an irrational nutcase, they say, and forcing banks to use market prices bred unreasonable losses. There's some truth to this, but:

* When market prices were irrationally high during the bubble years, no one complained. Instead, banks used absurdly high market prices to justify eight-figure paydays.
* This wasn't the most honest of rule changes. Financial firms spent $27.6 million lobbying members of Congress to persuade FASB to act. Thanks to the change, Wells Fargo (NYSE: WFC) boosted Q1 2009 capital by $4.4 billion; Citigroup (NYSE: C) juiced earnings by $413 million. Not a bad return on investment.
* We're now clearly past the days of irrational pessimism. So why haven't mark-to-market rules returned to their prior status? If the rules were altered to circumvent panic, and that panic has ended, why are we still here? (Hint: Read previous bullet point.)

3. Fed buying mortgage-backed securities
In late 2008 and early 2009, the Fed announced plans to buy up $1.25 trillion worth of mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae (known as agency securities).

Banks are one of the largest owners of these securities. So when the Fed intentionally drove up prices, the banks enjoyed guaranteed write-ups. And thanks to interest-free loans from the Fed, banks could load up on these securities while the Fed was still buying, ensuring even more profits. As bank analyst Meredith Whitney put it:

A lot of the banks got sort of back-door financing from the federal government by this massive agency trade, where they increased their holdings of government-backed securities … and made billions of dollars off of writing those securities up.

How much did banks make? It's hard to know. We do know that banks increased their holdings of Ginnie Mae securities nearly threefold between June 2008 and June 2009, from $41 billion to $114 billion. With the Fed telegraphing its intention to buy this stuff by the ton, you can hardly blame them.

4. Term auction facility (TAF)
When banks get into trouble, they can tap the Fed's discount window for emergency funding. But banks hate doing this, because it broadcasts their vulnerability.

Easy fix: In December 2007, the Fed rebranded the discount window into an anonymous program called TAF, where banks could borrow away from prying eyes. The Fed is happy to admit as much, writing, "The TAF offers an anonymous source of term funds without the stigma attached to discount window borrowing." At least they're honest.

Nothing surprises me at this point...

After the war, once the depths of Nazi race hatred had been revealed, Benny made a conscious effort to remove the most stereotypical aspects of Rochester's character. In 1948, it became apparent to Benny how much the times had changed when a pre-war, 1941 script for "The Jack Benny Program" was re-used for one week's show. The script included mention of several African-American stereotypes (i.e. a reference to Rochester carrying a razor), and prompted a number of listeners, who didn't know the script was an old one, to send in angry letters protesting the stereotypes. Thereafter, Benny insisted that his writers should make sure that no racial jokes or references should be heard on his show. Benny also often gave key guest-star appearances to African-American performers such as Louis Armstrong and the Ink Spots.

The rest of Benny's cast included character actors and comedians:

* Sheldon Leonard (later a hugely successful television producer and creator) as a tight-lipped racetrack tout;
* Joseph Kearns<10> as Ed, the superannuated guard to Jack's money vault;
* Verna Felton as Dennis Day's mother<11>;
* Frank Nelson, usually as an oily desk clerk or floorwalker, always greeting Benny with an eager Yeeeeeeesss?;
* singer/bandleader Bob Crosby (who succeeded Phil Harris in the early 1950s);
* Artie Auerbach as the Yiddish-accented Mr. Kitzel ("hoo, hoo, hoo!");
* Bea Benaderet, as Gerturde, the switchboard operator;
* Mel Blanc, who provided several characters' voices, including the railroad station announcer who said, "Train leaving on track five for Anaheim, Azusa and Cucamonga!". (With the pause continually lengthened in the last place name, this running gag became so well known that it eventually led to a statue of Benny in Cucamonga. It is located inside the Epicenter Stadium at Jack Benny Way and Rochester Avenue.) Blanc also was featured with Benny in the classic Si-Sy routine and on radio as the sound of Benny's Maxwell automobile. Blanc is perhaps best remembered as Benny's perpetually frustrated violin teacher, Professor LeBlanc, who was as likely to throw his own and Benny's instrument into the fireplace as he was to have a nervous breakdown before he was out the door.

http://www.metacafe.com/fplayer/yt-beMIl_jzRN0/jack_benny_mel_blanc_johnny_carson_1974.swf

http://www.guardian.co.uk/commentisfree/cifamerica/2010/apr/07/paul-krugman-break-up-banks


Paul Krugman says it isn't necessary – but breaking up financial giants would at least give us hope that things can change

It's not often that I disagree with Paul Krugman, but there are occasions where at least one of us is wrong. And the treatment of too big to fail (TBTF) banks is one of them.

Krugman argued in a column last week that breaking up the TBTF banks is not a necessary part of financial reform. Krugman pointed to the example of Canada as a country with a well-regulated financial system. Canada did not experience a financial crisis in 2008 in spite of the fact that five big banks essentially account for the whole of the Canadian banking system. On the other side, Krugman noted that the collapse of large numbers of small banks can also create a crisis, pointing to the chain of bank collapses at the start of the Great Depression.

These are valid points, but to paraphrase Dorothy in the Wizard of Oz: "we're not in Canada anymore." While Canadian banking regulation appears to have been effective thus far (we may want to see how they cope with a yet to deflate housing bubble before pronouncing it a success), Canada is a very different country from the United States. In Canada, they have had universal Medicare for 40 years. As the first President Bush used to say, it is a kinder, gentler, country.

This matters for financial regulation, because there is a level of independence and integrity on the part of the regulators in Canada that does not exist in the United States. The line in Washington is that if you want to talk to someone from Goldman Sachs, call the treasury department.

The close connection between the industry and the regulators matters because regulation will always require judgment calls. It also matters because regulation means limiting bank profits. The regulations are by definition about preventing banks from carrying on lines of business that are profitable.

Going back to the last crisis, our regulators should have cracked down on the junk mortgages that were being issued by the millions to buy homes at bubble-inflated prices. But this would have meant clamping down on banks that were making huge profits issuing the loans. It also would have meant clamping down on the investment banks that were making huge profits packaging them into securities and selling these securities all over the world.

To take an even more extreme case, the recent analysis of the Lehman bankruptcy showed that New York Federal Reserve Bank helped to hide Lehman's insolvency for months. It accepted Lehman's junk as collateral for short-term loans. This was a direct violation of the Fed's charter, which only allows it to accept investment grade assets as collateral, a definition that clearly did not include Lehman's "Repo 105s".

In these cases, our regulators instead used their judgment to decide that everything was just fine and looked the other way. Remarkably, no regulator was fired for these astounding failures in judgment. In fact, there was probably not even a single regulator who missed a promotion.

In the United States it will always be easy for regulators to look the other way, even when the ultimate consequences prove to be disastrous. By contrast, cracking down on politically connected banks is difficult for regulators. The banks' executives will call their friends in the administration and Congress to complain about the crazy regulator who is trying to keep them from running their business.

And, you can be sure that the banks will have a story. They pay smart people lots of money to develop those stories. The banks' mouthpieces will make a conscientious regulator look like a crazed vigilante who just doesn't understand modern finance. Just ask Brooksley Born, the head of the Commodities Futures Trading Commission who was stopped in her effort to regulate credit default swaps back in 1998.

Krugman is right that breaking up the banks does not guarantee good regulation. In addition to his Great Depression example, we also have the savings and loan disaster of the 80s. The S&Ls were overwhelmingly small institutions with even the largest being far below any conceivable TBTF threshold.

However, a break-up of the big banks will at least give the country some hope that things can change. As it stands now, the big banks are back on their feet, and in some cases more profitable than ever, feasting on the now explicit government guarantee of support in the event of a crisis. By my calculations, this guarantee could be worth as much as $34bn a year, more than one-third of the gross cost of the healthcare bill.

There are many aspects of regulatory reform that involve technical issues that the public will not follow. If we have to say what is different the day after financial reform is passed, rules on leverage limits and exchange-traded derivatives will not mean much, especially if they are enforced by people who accept Repo 105s as investment grade collateral.

If we break up Citigroup, Goldman, JP Morgan and the other giants, then we will know that something has changed. This break-up, along with a financial transactions tax, will lead to a qualitatively different financial industry.

http://www.nakedcapitalism.com/2010/04/guest-post-banking-industry-insiders-call-for-breaking-up-the-too-big-to-fails.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Virtually all independent financial experts are demanding that the too big to fail banks be broken up, including:

* Nobel prize-winning economist, Joseph Stiglitz

* Nobel prize-winning economist, Ed Prescott

* Former Secretary of Labor, Robert Reich

* Chairman of the Council of Economic Advisers under President George W. Bush, and Dean and professor of finance and economics at Columbia Business School, R. Glenn Hubbard

* Former IMF chief economist, and MIT professor, Simon Johnson

* Deputy Treasury Secretary, Neal S. Wolin

* The Congressional panel overseeing the bailout (and see this)

* The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

* Economics professor and senior regulator during the S & L crisis, William K. Black

* Economics professor, Nouriel Roubini

* Economist, Marc Faber

* Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

* Economics professor, Thomas F. Cooley

* Economist Dean Baker

In addition, many bank regulators say that we need to break up the too big to fails, including:

* Former chairman of the Federal Reserve, Alan Greenspan

* Former chairman of the Federal Reserve, Paul Volcker

* President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

* President of the Federal Reserve Bank of Dallas, Richard Fisher

* The head of the FDIC, Sheila Bair

* The head of the Bank of England, Mervyn King

Even the Bank of International Settlements – the “Central Banks’ Central Bank” – has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.

This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.

And many bankers are for breaking up the giants as well.

For example, the President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, is calling for the break up of the TBTFs.

As is former investment banker, Philip Augar.

But as a great new blog shows, even bankers within the mega-banks are themselves calling for them to be broken up.

On April 2nd, The Fourteenth Banker – a blog run by bankers within the big banks for bankers within the big banks – called for a campaign by bankers to demand that the mega-banks be broken up:

If you work for a big bank, … what would happen if the bank is broken up? Well, that would be very complicated financially, but the result is probably not that hard to predict. Most obviously, deposits would need to stay in the core bank. What would this mean for the way the core bank works to succeed, the non core products it distributes, and the way its deposits fund investments compared to the way things are now? I suspect less net deposits taken out of the community and more loans made in the community.

The different businesses would be spun off to shareholders or sold. Watch the ball here. The Investment Bank is going to want and need a disproportionate share of the capital if they want to maintain their lifestyles. Absent the cloak of respectability the bank provides, they are going to want to be the next Goldman. Watch the ball. Capital is critical. In fact, as a sort of mind game, I wonder how much capital regulators or the SEC or Moody’s would require? What would that leave for the bank?

***

What would the core banks funding cost be if it did not have to worry about the high leverage, senior unsecured bonds and the CDS spreads needed to support those? Maybe the core bank could both make more money and provide better deposit rates to savers. I don’t know. Where is the Congress on this? Why not look at the upside instead of just the fear of systemic risk, important as that is?

Studies consistently cite that the efficiencies (economies) of scale end and $100B or so. If that is the case, does that not make the multi million dollar men at the top of the pyramid the actual problem? Money is diverted from the branch to the Executive ranks, Private Wealth, and the Investment Bank. It is reverse Robin Hood.

So what do the majority of bankers have to fear from a break up? Nothing. It would bring management closer to the customer and the employee, create a better customer experience, more equitable pay, better teamwork, and a return to values oriented banking.

Given this common sense, all branch based folks at the thousand and thousands of branches should write their congressmen and women and Senators and ask for the passage of strong TBTF legislation that would restore dignity to their profession. Let Private Wealth and the I-Bank float on their own. If you are a shareholder in your 401K or otherwise, you will still get a piece of that action. The value of the parts is generally greater than the value of the whole anyway. It is a win-win-win except in the Executive wing and on Wall Street, which is out of touch with Main Street anyway.

Maybe we should organize a million banker March in DC for financial reform. Too bold?

http://www.philstockworld.com/2010/04/07/the-enron-banking-system/

“Panics do not destroy capital – they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works”
- John Mills, “Credit Cycles and the Origins of Commercial Panics”, 1867

What happens when you take a boring little utility company, leverage it up, expand its business far beyond its original operations, give it a prop trading desk, take it public and put a few corrupt greedy men in charge? You get Enron.

What happens when you take a boring little bank, leverage it up, expand its business far beyond its original operations, give it a prop trading desk, take it public and put a few corrupt greedy men in charge? You get the U.S. banking system.

The U.S. banking system remains a vital component of the U.S. economy, but as we’ve seen over the preceding 18 months the risks these firms take not only put their own firms at risk, but put the entire well-being of the country at risk as well. As the banks have recovered Main Street continues to ask about their bailout. With 9.7% unemployment and U6 unemployment at 16.9% the U.S. consumer remains embattled and beleaguered. Even worse, nothing has been done to ensure that the banks won’t do this again. This is the ultimate slap in the face for anyone who has lived through the last 18 months. Even worse, the regulatory plan we appear on the path of passing is nothing more than a return to the status quo. Unfortunately, the status quo was the problem.

Of course, the banks weren’t the only culprits in this crisis (we’ve thoroughly covered the failings of the Federal Reserve and the financially incompetent US consumer already), but they played a pivotal role. This is not to imply that banks are inherently evil or do not provide a great deal of good for the economy, but the current regulatory structures and business model is clearly flawed. Banks are unique in the economy in that they serve as custodians of the majority of the assets the public owns and provide an absolutely vital role in providing liquidity. If these firms are able to fail due to their own incompetence, lack of proper regulation and excessive risks it creates a systemic threat to the economy.

I have no issue with banks attempting to make a profit in traditional banking businesses (3-6-3 comes to mind), but when we allow these firms to turn into effective casinos you put the entire system at risk. When we allow these corporations to risk their own capital in potentially disastrous transactions we risk the very stability of the entire economy. Letting these banks operate as if they are all Enron is exactly what helped get us into this financial fiasco and it will certainly happen again if we don’t fix the Enron banking system.

I don’t necessarily believe the problem here is one of too big to fail, but rather ensuring that all banks never take the risks that put them and their deposits at risk. A large Enron is no more unstable or dangerous than several hundred small Enrons running in the same grid. It’s allowing these firms to operate as if they are Enron that poses a systemic problem. We must make banks be banks. Of course, much of this would involve reversing the de-regulation that has occurred over the last 25 years and it appears unlikely that Congress has the gumption to do so.

I firmly believe that the near destruction of the U.S. banking system in 2008 was the free market imposing its will on this sector of the economy that has grown too large in comparison to its true productive output. Many of these firms do little more than shuffle money from one pocket to the next while shaving off fees inbetween. In the meantime we continue to funnel our best and brightest minds into these institutions which produce little, but take much. The recent panic did not only destroy capital. It also showed the banks for what they truly are – hopelessly unproductive works.

So what should we do? We should draw a distinct line in the sand between banks and diverse risk taking firms. There are always going to be Enron’s in the economy, but why should we allow our entire banking sector to mirror Enron? Taking a 30,000 foot risk management view I say something must be done to ensure these banks can never do this again. Turn banks into true banks. Hedging and exotic business models are fine. Just don’t commingle them under the same umbrella as a deposit taking “bank”. With that, a few ideas come to mind:

* Our banking system should be aligned with the goals of the nation to help “grease” the wheels of the economic growth engine of the United States. Banks should be more like utilities and less like hedge funds. Otherwise, banking becomes counter-productive and potentially destructive.

* Banks should not be allowed to exact onerous fees on the public or enact a business model which is inherently dependent on driving their customers deeper and deeper into debt. This undermines the entire goal of productive economic growth.

* “Banks” should be true lending institutions. Non-traditional banking operations and products such as CDS, “off balance sheet” finance, derivatives as collateral and such would be deemed illegal unless performed only by non banking/lending institutions (such as hedge funds) so as to insulate the public and true lending institutions from the risk taking, “hedging”, and “financial innovation” of firms such as Lehman Brothers.

If none of this is done we’re destined to repeat the mistakes of the past and we all know how Enron ended up. Unfortunately, this is looking more and more like a crisis wasted….And the next time we have a banking crisis the public will have zero pity or tolerance for the banking system. It’s necessary that we work with the banks to be proactive and best serve the future productivity and well-being of the U.S. economy before there is a “next time”.

http://www.nytimes.com/2010/04/08/fashion/08Spitzer.html



HERE is Eliot Spitzer on MSNBC with the host Ed Schultz, railing against fallen Wall Street titans who regain power (“absolutely insane”). There he is on Fox’s “Good Day New York,” taking swipes at Andrew Cuomo (“he has to answer the hard questions”) and Senator Kirsten Gillibrand (“I don’t like politicians who vacillate”). He’s lunching regularly at power restaurants like Michael’s (telling the waiter, “Silda wants me to have the salad”), holding hands with his wife at charity galas, attending a private salon at Tina Brown’s. Writing his twice-monthly Slate column, “The Best Policy.” Teaching undergraduates at the City College of New York, lecturing at Harvard about ethics, parsing the meaning of love on BigThink.com.

It’s been scarcely two years since Mr. Spitzer, his ashen-faced wife at his side, seemed to have written his political obituary, with his taut-jawed, almost lipless grimace of resignation as governor of New York, following disclosures that he was a client in a prostitution ring. Now he is emphatically back, seemingly everywhere.

For public figures whose falls have been as spectacular as that of Mr. Spitzer’s, there are many time-tested paths to image rehab. Seclusion. Prison. Good works. The seminary.

None of those options, it seems, are for Eliot Spitzer.

“Most people faced with that kind of disgrace would disappear off the face of the earth for a longer period of time,” said Howard Rubenstein, the public relations impresario. “But there is a lot of curiosity about him. And he is a publicity steamroller” — a reference to Mr. Spitzer’s expletive-garnished self-description as a “steamroller.” “In time people will remember his strengths and his intelligence,” Mr. Rubenstein said, “and what he’s showing now: determination.”

During an interview this week in the Fifth Avenue offices of Spitzer Engineering, his father’s real estate business, Mr. Spitzer, 50, relaxed and ruddy from a family ski vacation in Utah, made it clear he was following a different path. “The only thing I can try to do is contribute in a small way and not in a way that is designed to get forgiveness,” he said. “That would be too transactional: ‘I’m doing X, now you will forgive me.’ I don’t think it can or should work that way.”

He made no apology for his pervasiveness as a pundit, first joking: “Public speaking? I speak to myself on the street!” Then he grew earnest. “You can view it as pure selfishness and hedonism,” he said. “But I care about this stuff. Obviously it’s more rewarding to participate when you can do something about it — which is why I loved and sorely miss the jobs I had.” He glanced over at Lisa Linden, a public relations consultant for Spitzer Engineering, whom he asked to be present.

After his resignation, Mr. Spitzer had a self-imposed exile that lasted about 8 1/2 months. On Nov. 16, 2008, 10 days after federal prosecutors declined to press charges, Mr. Spitzer had an opinion article on financial regulation published in The Washington Post. Two weeks later, at the behest of Cliff Sloan, Slate’s former publisher and a friend from Harvard Law School, he started his online column.

“I keep pressing the button on the Slate column,” Mr. Spitzer said, laughing, “so it looks like I’m getting a lot of hits.”

As the first anniversary of his resignation on March 12, 2008, approached, Mr. Spitzer expanded his audience: Fareed Zakaria on CNN, “Today,” the cover of Newsweek.

“Eliot is like the smartest kid in the room with his hand up, but the teacher’s not calling on him,” said his former political advertising aide, Jimmy Siegel. “He believes he has the answers to things, economically, and he would love to be in a position to do something about it.”

By last fall, he was teaching at City College. He said his students told him they didn’t watch mainstream news media, so he agreed to appear on “Real Time With Bill Maher” on HBO.

“I always thought he’d be a good guest as the Sheriff of Wall Street because of the financial meltdown,” said Mr. Maher, referring to Mr. Spitzer’s nickname. “I’d seen him on shows with the de rigueur ‘Let’s beat up on this guy before we get to what matters.’ I wanted to be the first one to have him on a program and not bring up the scandal.”

Indeed Mr. Maher did not; by the time Mr. Spitzer was a guest again in February, his onscreen identifier read, “Eliot Spitzer, columnist, Slate.com.”

Mr. Spitzer said he doesn’t court appearances. “This was a process over time of my accepting invitations from people that seemed would be fun.”

While some muscular forays — like his exchanges with Mr. Zakaria about the absence of Wall Street transparency — may remind viewers of Mr. Spitzer’s finer moments in government, others recall his tendency to be tone deaf.

In February, he faced off with Stephen Colbert on “The Colbert Report.” After Mr. Colbert recited what he said were the missteps of Ben Bernanke, he asked Mr. Spitzer if he was surprised that Mr. Bernanke had been reappointed chairman of the Federal Reserve, adding, “Does this give you hope for being re-elected governor of New York?” — laughter and applause from audience — “Because, may I remind you, he screwed everybody.”

Mr. Spitzer, laughing, answered, “I just became a big fan of Ben Bernanke.”

ELIOT SPITZER’S swift return to the bully pulpit may say as much about us — a scandal-fatigued public’s diminishing expectations of its officials — as it does about Mr. Spitzer’s restless inability to stay gone. And though he professes not to have a specific strategy of image rehabilitation in mind, whatever he is doing may be working.

In June, a poll by The New York Times, Cornell University and New York 1 News found that 26 percent of New Yorkers had a favorable view of Mr. Spitzer; only 21 percent held favorable views of his successor, Gov. David A. Paterson.

On “Hardball,” the Chris Matthews MSNBC program, Mr. Spitzer’s possible political return inspired a lively debate in February. And Mr. Rubenstein said that at a recent dinner party of 20 prominent New Yorkers, Mr. Spitzer’s past, present and future were closely analyzed. “Some thought he is making a play to come into elected office,” Mr. Rubenstein said. “That didn’t get a lot of support. But they thought, ‘He’s having an influence on policy, so let’s look past that episode in his life and appoint him as an adviser to something.’ That was the consensus.”

But Mr. Spitzer resigned, he said, in part to repair his family. “I’ve got a family that is intact and happy, and three kids who are spectacular, whom I had not seen enough of in years when I was A.G. and governor,” he said. “Is life as exciting? No,” said Mr. Spitzer, digressing about whether to introduce bees or sheep on his upstate property. “But I gained an awful lot that is more powerful and important.”

That said, his youngest will be a high school senior in 2012. An empty nest looms. A return then to politics? “Why does it have to be politics?” he said. “Is there a dynamism to that world and a theoretical capacity to do things that draws many talented people? Absolutely. Are there other ways to be involved and lead an interesting life? Of course.”

But each time he speaks out, doesn’t he expose his family to more churning of his misdeeds? “I don’t do things they don’t want me to do,” Mr. Spitzer said. “I also think you face up to your errors, deal with them and go forward.”

The scandal shadows him still. Not only on “The Good Wife,” CBS’s show based loosely on the imbroglio, but in The New York Post, where Ashley Dupré, the prostitute he was linked to, is a sex columnist.

And more is coming: the just-published “The Journal of the Plague Year,” by his former adviser, Lloyd Constantine, and later this month, “Rough Justice: The Rise and Fall of Eliot Spitzer,” by Peter Elkind, an editor at large at Fortune, who was editor of the campus paper at Princeton when Mr. Spitzer was head of the student government. “That is part of what I have to deal with,” Mr. Spitzer said stiffly, “and staying under a rock won’t change that.”

While Mr. Spitzer maintained that he had no role model for comebacks, there are plenty of political Lazaruses. President Nixon. Senator Ted Kennedy, after Chappaquiddick. Representative Barney Frank, whose former roommate ran a male prostitution ring. Bill Clinton, whose name is rarely synonymous these days with a blue dress.

“You can be rehabilitated and make a comeback and get away with really bad behavior,” said Doug Muzzio, a professor of public affairs at Baruch College. “It depends on your base.” (Though many political consultants concur that “comeback” and “John Edwards” will never appear in the same sentence.)

What remains of Mr. Spitzer’s base remains unclear. But as lurid memories of black socks fade, Mr. Spitzer may be the beneficiary of a perfect storm: the populist rage at Wall Street, the troubled administration of Mr. Paterson, and other recent sex scandals.

“There’s a dumbing down of our expectations,” said Mr. Muzzio. “When you’ve got Mark Sanford and Rod Blagojevich, and other criminals in state houses, what Spitzer did doesn’t look as bad. Given the barrenness of the terrain, he may stand a little taller.”

Jeff Greenfield, the CBS political analyst, who is to interview Mr. Spitzer at the 92nd Street Y on May 2, distinguishes the former governor’s scandal from the more recent ones, like those of Mr. Edwards. Mr. Spitzer, he said, took swift responsibility and did penance.

“This was legitimately a private failure,” Mr. Greenfield said. “A serious one, that made him no longer able to be governor. If he were trying to talk about moral rearmament, it would be appropriate to say, ‘Hold it.’ But he is talking about how to prevent another financial meltdown, and he’s in a pretty interesting position to talk about that.”

And Mr. Spitzer may benefit from the fact that other celebrities who behaved badly and have apologized have resumed their lives on an expedited track. Tiger Woods is returning to golf after five months. David Letterman kept showing up for work.

Lloyd Constantine, with whom Mr. Spitzer is no longer on speaking terms, said he was distressed but not surprised by the ex-governor’s early return to the megaphone. Mr. Spitzer, he said, needed to give a better accounting for his brief gubernatorial tenure.

“Those 14 months were awful,” Mr. Constantine said. “The state was in bad shape when he took office, it was worse when he left and it’s continued to decline ever since.”

In the interview, Mr. Spitzer refused to speak about Mr. Constantine. But almost instinctively, he produced an old-fashioned stump speech, ticking off his accomplishments as governor: education, Medicaid, the environment. He wrought his achievements, he said, by thinking outside of the box, by ignoring conventional wisdom that said, “You can’t do that.”

Referring to his personal downfall, this reporter asked: “Wasn’t there a voice inside you that said, ‘You can’t do that?’ ”

“Sure there was,” Mr. Spitzer replied.

“But you didn’t listen?”

Mr. Spitzer answered, “That’s a separate issue.”

The room fell silent, thick with promises both broken and unfulfilled.

At last, Mr. Spitzer spoke. “Kind of pathetic,” he said quietly. His face reddened. “Take out ‘pathetic,’ ” he said. “ ‘It’s a shame.’ ”

http://www.structuredfinancenews.com/news/-204731-1.html



As the distressed-asset market begins to stabilize, the Federal Deposit Insurance Corp. (FDIC) is shaking up the way it handles failed banks and their assets.

The vast majority of failed-bank resolutions to date have followed a pattern in which the FDIC sells the bank's assets and deposits to another bank and pledges to cover the bulk of the buyer's losses.

But as the economy stabilizes and a growing pool of investors compete with banks for failed assets, observers said the agency is trying new tactics to reduce its losses.

"What you're seeing is the whole process opening up away from plain-vanilla transactions," said Kip Weissman, a partner in Luse Gorman Pomerenk & Schick. "The FDIC feels more comfortable experimenting and trying to get better pricing."

The FDIC has formed partnerships with investors to sell assets well after a failure, embraced limited involvement from private-equity buyers and boosted liquidity by selling bonds backed by failed-bank assets. Ten days ago, the agency also removed a bonus layer of protection from loss-sharing deals.

But with both the FDIC and investors showing more confidence about what had been a dead market for toxic loans, observers say even bigger changes may be in store.

They sense more openness from FDIC officials toward private equity and cite buzz about possible bid packages that would include multiple failed banks. The FDIC is also discussing plans to securitize receivership assets.

As "they did in the savings and loan crisis, they're experimenting as they go along to see what works best, and with a continuing effort to reduce the cost to the" Deposit Insurance Fund, said Ralph "Chip" MacDonald, a partner in the Jones Day law firm in Atlanta."They obviously have a lot more experience now in the current markets, and they continue to evolve and try to figure out where the demand is."

Since the early '90s, the FDIC has routinely agreed to share losses with buyers as a way to attract better prices on the hard-to-value assets of failed banks.

The agreements — totaling 126 since the start of 2009 or 70% of the failures in that period — have typically forced the FDIC to cover 80% of a buyer's losses up to a stated threshold, and 95% of losses beyond the threshold.

On March 26, the FDIC said that, in light of the improving economy, it was dropping the option of 95% coverage.

The move was seen as having relatively little impact — no buyer has yet had to tap the second layer of protection — but observers cited it as another sign the agency may feel it has more leeway with buyers.

"They have a pulse on the market, and when they feel they can make an adjustment within the constraints they have to work under, they have shown willingness to do that," said Robert Hartheimer, a former director of resolutions at the FDIC, and now a private consultant in Washington. "They clearly feel comfortable with their process today to adjust the loss-sharing formula."

Weissman said the typical whole-bank deal with loss-sharing allows the FDIC to "act quickly" when a bank fails. However, he added, "the pricing wasn't optimal" for the agency "because bidders weren't going to pay as much when they had less time to consider a transaction and because of concerns about the general economy."

The removal of the 95% protection is, "to me, part of a general trend away from one-size-fits-all toward more customized, individually negotiated transactions," Weissman said.

Some observers said the FDIC may simply feel less pressure to unload institutions than when the crisis began. "Certainly, the FDIC does not have the same systemic risk pressures it had a year and a half ago, so it has a little bit more time to think through how it markets community and regional banks that fail," said V. Gerard Comizio, a partner in Paul, Hastings, Janofsky & Walker.

Others said the agency and investors may feel confident enough about other types of deal structures to pursue transactions without loss-sharing, which could increase revenue to the DIF.
For example, since September the FDIC has done five deals with private investors, buying assets left over from failed banks. The FDIC shares in any upside once the assets are resold. On Thursday, it announced its latest deal involving $490.7 million worth of assets from 19 failed banks.

Those structured loan deals give the FDIC "additional reason to believe they can dispose of nonperforming loans … outside the P & A process," said MacDonald.
"That allows them to narrow the spreads and gains they're giving to buyers in whole-bank transactions. As a result, we may see more whole-bank transactions without loss-sharing because they can transfer the assets to the private sector via the structured loan sales."

Michael Krimminger, deputy to the chairman for policy at the FDIC, said the agency is committed to "exploring all the different transaction structures."

"We want to make sure we have all the different tools on the table and are ready to go to get us the best value for a particular pool of assets," he said. "Certainly, a year ago, the market was much less inclined to buy assets separate from the bank franchise itself. There is more interest in that now."

One trend picking up steam is private-equity investors' teaming up with healthy banks to bid. "The banks can use the acquired assets and liabilities more efficiently than private equity. At the same time the banks are capital-constrained," Weissman said.

Observers also expect the FDIC to package multiple failed banks.

The most notable past example of this was in 1991 when seven banks in New Hampshire failed, holding $4.4 billion in assets, or about 25% of the state's total.

The FDIC packaged them into two new entities for sale and combined the unsold assets into one pool.

"Similar to the savings and loan crisis, it's likely that the FDIC will consider offering multiple institutions, especially in the same geographic area, in one bid package or hold them in conservatorship with the possibility of a further bid as a group," Comizio said.

Such transactions would probably give prospective bidders a longer time to conduct due diligence.

"There has been discussion of cluster bids of up to five banks, and with extended marketing and diligence periods of perhaps 60, instead of 30, days," MacDonald said. "If you cluster a bid you can get a package that might interest people with more money to deploy. It makes sense in selected situations and selected markets."

The FDIC has also been signaling plans to make assets in receivership available to investors through the securitization market. "Hopefully, we will be going to the market with a pilot securitization in the not-too-distant future," Krimminger said.

The Jack Benny Program evolved from a variety show blending sketch comedy and musical interludes into the situation comedy form we know even now, crafting particular situations and scenarios from the fictionalization of Benny the radio star. Anything, from hosting a party to income tax time to a night on the town, was good for a Benny show situation, and somehow the writers and star would find the right ways and places to insert musical interludes from Phil Harris and Dennis Day. With Day, invariably, it would be a brief sketch that ended with Benny ordering Day to sing the song he planned to do on that week's show.

One extremely popular scenario that became an annual tradition on The Jack Benny Program was the "Christmas Shopping" episode, in which Benny would head to a local department store. Each year, Benny would buy a ridiculously cheap Christmas gift for Don Wilson from a store clerk played by Mel Blanc. Benny would then have second (third, then fourth) thoughts about his gift choice, driving Blanc (or, in two other cases, his wife and his psychiatrist, as well) to hilarious insanity by exchanging the gift, pestering about the Christmas card or wrapping paper countless times throughout the episode: in many cases, the clerk would commit suicide, or attempt and fail to commit suicide ("Look what you done! You made me so nervous, I missed!") as a result.

For example, in the 1946 Christmas episode, Benny buys shoelaces for Don, and then is unable to make up his mind whether to give Wilson shoelaces with plastic tips or shoelaces with metal tips. After Benny exchanges the shoelaces repeatedly, Mel Blanc is heard screaming insanely, "Plastic tips! Metal tips! I can't stand it anymore!" A variation in 1948 concerned Benny buying an expensive wallet for Don, but repeatedly changing the greeting card inserted—prompting Blanc to shout: "I haven't run into anyone like you in 20 years! Oh, why did the governor have to give me that pardon!?" – until Benny realizes that he should have gotten Don a wallet for $1.98, whereupon the put-upon clerk immediately responds by committing suicide. Over the years, in these Christmas episodes, Benny bought and repeatedly exchanged cuff links, golf tees, a box of dates, a paint set, and even a gopher trap.

In 1936, after a few years broadcasting from New York, Benny moved the show to Los Angeles, allowing him to bring in guests from among his show business friends — guests as diverse as Frank Sinatra, James Stewart, Judy Garland, Barbara Stanwyck, Bing Crosby, Burns and Allen (George Burns was Benny's closest friend), and many others. Burns and Allen and Orson Welles guest hosted several episodes in March and April 1943 when Benny was seriously ill with pneumonia, while Ronald Colman and his wife Benita Hume appeared frequently in the 1940s as Benny's long-suffering neighbors.

http://en.wikipedia.org/wiki/Jack_Benny

Like Benny, Demeter is forever 39, despite last week's birthday....

Mom and I will both celebrate our 39th birthday this year,







and next year,


and the year after,

and the year after that.......

http://www.nakedcapitalism.com/2010/04/throwing-in-the-towel-on-policy-makers.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Earlier today, I had a brief e-mail exchange with Marshall Auerback in which I said that I had basically thrown in the towel on US (and global) policy makers. Early on in this crisis, I had advocated a number of policy paths which I think would have been infinitely superior to the ones actually chosen by the Bush and Obama Administrations, especially in regards to limiting the socialization of losses. I am talking about massive fiscal stimulus, big bank pre-privatization, a move away from the asset-based economy and the accumulation of debt, and a reallocation of resources.

Quite frankly, none of these suggestions have been taken on. As I discussed in March when making a few comments on my harsher tone about the credit crisis, the prevailing view in policy circles seems to be that we are in full recovery mode now, the remedies we put in place having been highly effective. Therefore, we can put in a few minor tweaks to the financial system, use our propaganda machine to tout them as the largest regulatory changes since the Great Depression, and then return to business as usual.

I find this narrative very unsettling and the complacent view it represents as likely to lead to another systemic crisis in short order. But the mindset is fixed. This is the reality of our policy making elite.

And it seems that I am not the only one who has come to this conclusion. Mark Thoma voiced similar views in a post earlier today. In a post entitled "Giving Up on Policymakers", Professor Thoma said:

I’ve been pushing hard for more help for labor markets for quite awhile… but it’s probably time for me to give up and accept that we are going to have a slower recovery than we could have had with more aggressive fiscal policy…

The fiscal policy response to the crisis has been disappointing. Monetary policy loses its effectiveness in a recession. There are some things monetary policy can do…But when it comes to providing a big shock to aggregate demand sufficient to turn the economy around and propel it back toward full employment, monetary policy alone isn’t enough. It’s true that monetary policy can lower real interest rates — even at the zero bound for the federal funds rate, it’s still possible to use quantitative easing to nudge long-term interest rates downward — the problem is that all this does is create an incentive for more investment and consumption (mainly of durables), there is nothing to guarantee that people will actually respond…

Because monetary policy loses effectiveness in a deep recession — something I’ve been teaching for decades — I was among the first to call for aggressive fiscal policy. Fiscal policy creates demand directly, it does not rely upon incentives and the hope that people will respond to them. When the crisis hit, we needed fiscal policy right away. Given the lags between changes in policy and actual effects on the economy, which were known to be lengthy, and given that monetary policy was not going to be enough, there was no time to "wait and see" (as many people I respect were calling for). But the reality is that fiscal policy didn’t get put into place until much, much later, far too late to stop the worst of the downturn (and it wasn’t big enough anyway). The way too slow policy process, and the way too small policy that came out of it, was frustrating to watch.

I think we’d be much better off today if we’d done what is necessary right away instead of hoping and hoping that things weren’t going to be so bad, and that we could escape the need for an aggressive policy intervention. This crisis has taught me that policy of that magnitude is nearly impossible to put in place based upon what looks to be happening, i.e. before the recession actually occurs. There must be clear evidence that a severe recession is actually underway before policy will be considered. Unfortunately, by that time it’s too late to prevent the worst part of the downturn.

Now that we are hitting the other side, I’m feeling frustrated again with the lack of action from policymakers. I expect the recovery to proceed at a snail’s pace, labor markets in particular. If employment rebounds quickly, great, but that’s not what I think is going to happen, and that’s not what the evidence suggests. If the recovery is going to be slow, then it’s not too late to provide more help. Instead of getting back to full employment by, say, 2013, we could get there sooner if we act now.

I agree with Professor Thoma. His comment near the end of his post was the one of greatest importance:

But, as I said at the beginning, even though it’s not too late for more help to make a difference, it’s not going to happen.

The question, then, is what is going to happen. I have made my arguments on this in the past. For example.

I expect the following to occur:

1. Public pressure to withdraw monetary and fiscal stimulus will work and stimulus will be reduced quicker than many anticipate – beginning sometime in early 2010. The Fed has already said it will stop buying mortgages in March and the Obama Administration is now focused on deficit reduction as evidenced by the paltry jobs bill just passed.
2. The fiscally weak state and local governments will therefore receive little aid from the federal government. This will result in budget cuts, tax increases, and layoffs by the end of Q2 2010.
3. At the same time, the inventory cycle’s impact on GDP growth will attenuate. By the second half of 2010, inventories will not add considerably to GDP.
4. Meanwhile, the reduction of Fed support for the mortgage market will reveal weaknesses there. Mortgage rates may increase, decreasing housing demand.
5. Employment will be weak in this environment, leading to another spate of defaults and foreclosures.
6. The foreclosures and weak housing demand will pressure house prices and weaken lender balance sheets, especially because of second-lien exposure. This will in turn reduce credit growth.

I expect the weakness in GDP from this scenario to be evident sometime in the second half of 2010.

-The mindset will not change; a depressionary relapse may be coming, Mar 2010

But what about other more bullish views out there? Why can’t the economy be robust enough to withstand these problems? Aren’t banks earning enough to reduce capital constraints to lending? Isn’t consumption growth resuming? Why are munis the next shoe to drop? Couldn’t it be that the rise in asset prices will buoy their revenue streams? These are all questions I ask myself (probably not publicly since "Is economic boom around the corner?" in Sep 2009). But I fail to see how in a world of the Greek sovereign debt crisis, the disputed Chinese asset bubble and a potential Sino-American trade war that these preconditions do not necessarily lead to economic weakness for the foreseeable future.

So rather than repeat these points ad nauseam, I am asking you the readers to debate this for me. What am I missing?

http://ftalphaville.ft.com/blog/2010/04/07/196626/jp-morgan-i-put-a-spell-on-you/



There’s nothing like hard times to bring out the bank-bashing craziness.

And JP Morgan is no stranger to recession-induced weirdness. For instance, in 1933, in the midst of the Great Depression, John Pierpont Morgan Jr. had a midget sit on his lap during the Pecora Commission — a series of hearings delving into the causes of the Wall Street Crash. Pecora eventually ended in some new regulation including Glass-Steagall, the act which separated commercial and investment banking.

Anyway, the absurdity is back. And as the very funny LOLFed notes, we are no longer talking about using regulation to curb the banks. No – we are talking using good ol’ fashioned pseudo-religion.

From the Courthouse News Service:

MANHATTAN (CN) – The self-ordained Rev. Billy Talen was arrested on Easter Sunday after putting a “holy hex” on JPMorgan Chase bank, which he calls the nation’s largest financier of coal-mining mountaintop removal. The former New York City mayoral candidate and his green-robed chorus put the hex on two bank branches, saying Morgan Chase has helped destroy more than 450 Appalachian mountains, deforested 800 square miles and polluted more than 1,200 miles of streams.

At this point you may be asking; since when is cursing a company an arrestable offense?

To which we (via the Court News Service) answer:

Rev. Billy led his Life After Shopping Gospel Choir to two East Village Chase branches, where the singers “deposited” mounds of “sacred dirt from Coal River Mountain, West Virginia” on the floors of ATM lobbies . . . As Talen concluded his sermon, NYPD Officer William Svenstrup ordered him to withdraw his deposit of dirt from the bank floor. The Rev. Billy refused. “Then you are coming with me,” Svenstrop said, while another officer took out the cuffs, and used them, and the choir chanted, “Free speech! Free press! Free people! Repressed!” Then the choir sang the text of the First Amendment.

Deposit of dirt. You can’t make this stuff up (though arguably Rev. Billy did).

Anyway, FT Alphaville sees a business opportunity here.

Jamie Dimon voodoo dolls will now be sold in the first-floor gift shop:

Perfect, I've been needing a new signature line... and this is almost a Mondo! :rofl:

http://link.ft.com/r/6NPSBB/IYS2YA/3CWTA/5CWQG9/YHG5ZO/PJ/t


China on Saturday announced a rare deficit in its politically sensitive trade balance for March, the first in six years, bolstering Beijing’s argument that the value of its currency only has a limited impact on international trade flows.

News of the $7.2bn deficit comes at a fortuitous time for Beijing, which is under pressure particularly from the US to allow the renminbi to appreciate.

too fortuitous. If it sounds too good to be true....it is.

AnneD-sitting in hell trying to find a warm jacket.

I guess the cherry crop is toast...

http://www.economist.com/blogs/freeexchange/2010/04/chinas_currency_3

LAST week, Joe Stiglitz wrote a piece arguing that confronting China over the dollar peg would be a bad idea, as it would risk a trade war over a policy change with uncertain benefits. Regarding the benefits of appreciation, he said:

Many factors other than exchange rates affect a country’s trade balance. A key determinant is national savings. America’s multilateral trade deficit will not be significantly narrowed until America saves significantly more...

The meaning of this passage seems very clear to me. The first sentence indicates that exchange rates do affect trade balances, but are just one of many factors influencing that balance. The last sentence suggests that while an RMB revaluation will likely narrow the deficit, but it won't eliminate it until other structural factors change. Nowhere does he say, or even hint, that it is impossible for an exchange rate shift to influence trade balances.

But Paul Krugman refers to:

...the fallacy — which both Steve Roach and, I’m a bit shocked to say, Joe Stiglitz — have fallen into: the belief that appreciating the renminbi can’t reduce the US trade deficit unless US savings increase.

Mr Stiglitz never expresses any such belief! He's not "getting it wrong". He's saying that writers like Mr Krugman, who appear to expect an RMB revaluation to eliminate America's current account deficit at a stroke, are sure to end up disappointed!

Antonio Fatás has some thoughts worth reading on the matter:

I will not resolve the debate here but there is something that I cannot understand in Krugman's argument. His argument is that current account imbalances cannot be corrected without an exchange rate change. While he does not say so, he almost implies that current account imbalances are always the result of exchange rate misalignments. This position is too extreme...

Here is an interesting piece of data: while both the US and the Euro area have a large bilateral trade deficit with China (which can be interpreted as a signal of the undervaluation of the Renminbi), the Euro area has an overall current account surplus while the US has a current account deficit. You can argue that for the Euro area, an undervalued Renminbi shifts demand from other countries goods to Chinese goods. But this does not get reflected in the overall current account balance. Clearly there is more than an undervalued Renminbi in the dynamics of the current account in the US and the Euro area.

Meanwhile:

The Chinese government is set to announce a revision of its currency policy in the coming days that will allow greater variation in the value of its currency, combined with a small but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said Thursday.

While there remains a possibility of a last-minute glitch that could delay the announcement, China’s central bank appears to have prevailed in its arguments for a stronger but more flexible currency, these people said. They insisted on anonymity because of the sensitivity of the issue in Beijing.

Matt Yglesias says that the hardliners are likely to claim victory by saying that the appearance of an angry horde of pundits and politicians calling for punitive trade measures against China boosted the president's bargaining power on the issue. Perhaps so. I'm just glad that such measures haven't actually been adopted, as they could easily prove very costly. And I'd point out that any time you create a furore over an issue like this, there's always the chance that someone will act in earnest on your bluster. This was a dangerous time to be calling for tariffs, and we should all be very relieved that the diplomatic path seems to have prevailed.

http://www.nytimes.com/aponline/2010/04/07/business/AP-LT-Argentina-Debt-Ruling.html?_r=1

Argentina quickly said it would file a court appeal after a U.S. federal judge ruled Wednesday that bondholders can seize $105 million in Argentine central bank deposits held in the United States.

A bank spokesman told The Associated Press that Argentina was optimistic because similar rulings had been overturned.

The decision, nevertheless, drove down Argentine bond prices just as the cash-strapped government prepares a $20 billion debt-swap offer in hopes of satisfying the bondholders and ending the lawsuits.

Argentina has been in a seemingly endless legal battle with bondholders who refused to accept about 30 cents on the dollar for debt they bought before the country's record $95 billion default in 2002.

U.S. District Court Judge Thomas Griesa in New York said Argentina is willfully defying its legal obligations and ''has thus enmeshed the court in years of wasteful litigation with no end in sight.''

More threatening for Argentina is the basis for his ruling: that President Cristina Fernandez has proven through her actions that the country's Central Bank lacks independence. That could expose Argentina's funds to other seizures, and increase the perception around the world that the country is a risky place to invest.

The judge issued the order at the request of the hedge fund firm Elliott Management Corp. and an affiliated company, NML Capital Ltd.

''We are very pleased with the decision,'' said David W. Rivkin, a lawyer for Elliott Management. ''We proved that Argentina has over many years interfered with the actions of the Central Bank so that it simply became an arm of the Argentine government.''

He said that as a result of the ruling, the hedge fund0 ''can seek to attach any assets of the Central Bank in order to satisfy our $800 million judgment against the government.''

A spokesman for NML Capital said he would have no comment.

''This case got a lot more complicated when the government decided to use central bank funds to pay off its debt,'' said Adrian Rozanski, a consultant with Delphos Investment in Buenos Aires. ''It was the government's fault for linking the central bank balances with the national treasury.''

After rising 20 percent in anticipation of a successful settlement, Argentine bond prices fell about 3 percent Wednesday, Rozanski said.

He attributed the drop in part to profit-taking and other factors in global bond markets, but said there are also fears similar rulings may come and hurt the debt swap that Argentina hopes will resolve its foreign debt problems.

http://blogs.reuters.com/rolfe-winkler/2010/04/08/home-equity-horror/



By now everyone knows that big banks have A LOT of second lien loans on their balance sheet. But how much is at risk of being written off? CreditSights put out a report that helps answer that question (no link). In the meantime, regulators may dust off a shelved capital rule so that they’ve more capital to deal with the problem.



Home equity exposures

Total home equity exposure at banks is pretty big. Amherst Securities has said commercial banks hold approximately $767 billion of the total $1.05 trillion of second mortgages outstanding, with the Big 4 holding over $400 billion alone.

But the key issue is what portion of these are at risk of writedowns. Most vulnerable are loans (or portions thereof) that are no longer backed by property. That is, the price of the underlying home has fallen below the balance on the loan. In banker shorthand: “loan-to-value” (LTV) is greater than 100%.

These are in peril because home equity loans are frequently structured with big principal payments on the back end, so even though many borrowers are currently making payments they’d need to stump up an awful lot of cash to pay off the balance. Unless housing miraculously recovers and they can sell or refinance at a price that will pay back all their debt, well, expect a spike in walk-aways…

CreditSights takes a stab at the potential writedown for the Big 4 banks and finds that Wells Fargo is particularly vulnerable.

The tricky part of the analysis is how much reserves banks have built against these loan books to absorb losses. There, disclosure varies by bank, so CS had to take a stab.

The truly dire scenario would be to mark down the entire portion of home equity debt that exceeds home values. Net of estimated reserves that would be:

—$37.2 billion for Wells
—$29.9 billion for JP Morgan
—$28.6 billion for BofA
—$11.5 billion for Citi

Banks would say this is overstating likely losses. And they’d be right. Plenty of other unsecured loans get paid down (credit cards, student loans) so unsecured home equity loan balances aren’t a total writeoff. But again, unless house prices come back, folks may have big trouble paying off balances.

By the way, it’s a testament to banks’ short-sightedness during the bubble that they held on to most home equity paper. They thought they were reducing interest rate risk by holding these loans, which carry higher, often variable rates. But they ignored credit risk, blithely assuming house prices would perpetually ascend allowing borrowers to perpetually refinance.

Luckily regulators are paying attention. In fact, they plan to dust off a new capital rule that was shelved during the crisis. Among other things it would force banks to hold more capital against home equity loans where LTV is above 90%.

Specifically, such loans would see their “risk-weighting” boosted from 100% to 150%. To be considered “well-capitalized” banks must hold capital equivalent to 10% of risk-weighted assets. So, for instance, Wells might have to hold an additional $3.1 billion (=$62.6bln*50%*10%). For the other three, see the graphic.

Even if banks hold more capital against these books, it may not be enough to avoid a substantial hit to their earnings

http://seminal.firedoglake.com/diary/39434

Jon Walker writes about the decision of private health insurers in Massachusetts to withhold offers for new plans in the state’s Health insurance "Connector." That follows the Boston Globe report of a decision by Massachusett’s insurance regulator to deny most of the requests by insurers to raise their insurance premiums.

Jon traces the problem to the absence of a public option, which could guarantee consumers an alternative/safety net if the private insurers withhold their products. He also faults the ability of private insurers to sell insurance outside the exchange/Connector. I think he’s right, but there’s an even more fundamental problem at work here, and it reminds me of what happened in California’s electricity market.

The short version is that Massachusetts appears to be inadvertently fostering an artificial shortage in health insurance. And they’re doing it for the same reasons that California authorities inadvertently created or exacerbated artificial shortages in electricity that repeatedly caused blackouts during the 2000-2001 crisis.

We’ve seen this before, and unless Massachusett’s Governor and regulators are smarter than California’s Governor and Public Utility Commission, this is not going to turn out well. So what’s going on?

One way to think about this is to ask how the Massachusetts Connector, its health insurance exchange and the model for the exchanges in the national health bill, is supposed to work. The academics who sold this concept to Republican Governor Romney and the Democratic Legislature convinced officials that private health insurers would charge reasonable prices if they were forced to compete in a transparent "market" by offering more or less uniform products whose quality and features were ensured by regulatory oversight. In other words, the competition itself would lead to efficient prices.

On top of this, state insurance regulators would retain some limited authority to review premiums charged by the insurers. But that implies that the scheme’s creators weren’t convinced the market would produce fair prices. They’d have to be limited by regulation.

When the State’s regulators disallowed almost all of the insurers’ proposed premium increases for the Connector/insurance exchange, the State was effectively saying, "the exchange market doesn’t work, and we can’t rely on the consumers shopping on the exchange market to drive prices down to reasonable/fair/efficient levels." In short, the entire premise of the "market structure" just collapsed.

But if the flawed insurance market can’t produce efficient prices, then by definition we’re in a regulatory cost-of-service paradigm. There is a whole body of literature and a hundred years or experience explaining how you regulate utility rates.

The essential principle is a "regulatory bargain," in which the service provider — the utility — is obligated to serve (think guaranteed issue in the insurance sector), but the regulator has an equally important obligation to set rates at levels that will allow the utility/service provider to recover all of its prudently incurred costs plus a reasonable opportunity to earn a reasonable rate of return of/on capital. The profits from these rates have to be sufficient to allow a reasonably managed firm to attract sufficient capital to continue meeting the provider’s obligation to serve.

In this regulatory framework, when Massachusetts authorities rejected the insurers’ proposed premium increases, the insurers translated that to mean the State had broken the regulatory bargain. In their view, the regulators were not allowing them to pass on rapidly rising health care costs and were thus forcing the firms to do business while losing money. In essence, they’re saying, "we cannot stay in business by operating at a loss, so we will withdraw from the market."

Of course, regulators disagree; they claim that lower premiums would be sufficient to recover costs, and costs don’t appear to be rising as fast as proposed premium increases. In a large state, such regulatory decisions usually take months to consider and document, after combing the utility’s books and extensive contested hearings. It’s not clear that happened here.

But of course, the designers of the health insurance market never assumed that all suppliers might react to a negative decision by withholding supply and creating a shortage. They expected the market to drive prices down to marginal costs, but it didn’t. Now what?

In California, when the Governor and PUC failed to understand this problem, that convinced lots of electricity suppliers to withhold power from the market, causing artificial shortages. The State dug in its heels, the market collapsed, and the lights went out because many suppliers refused to operate without being paid.

Eventually, two of the largest utilities in the world were driven into insolvency/bankruptcy, along with several independent power companies. The state took over power contracting for the bankrupt utilities, and it spent almost 10 years trying to get out of the terrible contracts they negotiated. But ratepayers still had to pick up the tab when the smoke cleared.

And what happened to Governor Gray Davis? He got Terminated.

So good luck to Massachusetts officials. If your market doesn’t work to set reasonable prices, then you need to acknowledge that and start thinking like serious regulators; you’re going to have to get a lot deeper into cost-of-service regulation than you ever imagined.

And setting rates is more than making consumers happy; you also have to allow premiums that keep the insurers from withholding service or withdrawing completely. Welcome to cost-of-service regulation of essential public services.

They have until sometime in May to file their tax returns.

http://www.marketwatch.com/story/junk-has-outperformed-quality-so-far-this-year-2010-04-09

AND WHAT DOES THAT TELL US? EITHER THE JUNK ISN'T JUNK, OR THE QUALITY ISN'T QUALITY, OR THERE'S RAMPANT SPECULATION THAT THE TAXPAYER IS GOING TO BE TAKEN AGAIN, A NEW BUBBLE IS BEING BLOWN, OR SOME COMBINATION OF ALL OF THESE....

Investors in Wal-Mart have every reason to wonder if the financial Gods are crazy.

The company is in excellent financial health, with lots of cash on its balance sheet, very little debt, and a track record of consistently turning a profit. Yet stock in Wal-Mart Stores Inc. /quotes/comstock/13*!wmt/quotes/nls/wmt (WMT 55.07, -0.31, -0.56%) gained just 4% in the first quarter -- 4.6% if you include dividends.

Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C 4.55, +0.08, +1.79%) , in contrast, is close to the opposite end of the financial-health spectrum. It is still not completely off the life support the federal government extended to it during the recent credit crisis, for example, and its survival is by no means assured. Yet its stock gained 22.4% during the first quarter -- or nearly five times as much as Wal-Mart.

These two companies' experiences this year are not unique, furthermore. On average, the companies with the highest financial-quality ratings made about half as much during the first three months of this year as the lowest quality companies. This repeats a similar pattern that was seen in 2009.

To some observers, at least, this discrepancy between quality and junk suggests that the stock market right now is vulnerable to a decline. In any case, it also suggests that a safe bet going forward is to bet that the discrepancy between junk and quality will either narrow or even reverse itself -- which is just another way of saying that the highest quality stocks will outperform the lowest quality issues.

What caused the wide discrepancy in the first place? The transition from the 2007-2009 bear market to a new bull market was one big factor, of course. The lowest-quality companies were the biggest casualties during that bear market, since their very survival was called into question. So it stands to reason that they would jump back the most when the economy showed signs of recovering.

But Jeremy Grantham, the chief investment strategist at GMO, thinks this can explain only some of the discrepancy. In an interview several months ago, he said that he thinks another, perhaps even bigger, factor is the federal government's stimulus program, which in his view carries the implicit (if not explicit) assurance that companies won't have to suffer the complete consequences of their risky bets if those bets don't work out.

Given this so-called moral hazard, therefore, investors have acted rationally in bidding up the prices of the riskiest companies.

The problem, of course, is that the government's stimulus programs can't and won't last forever. And when those programs wind down, the stock market will re-price the lowest-quality stocks to take into account the greater exposure to downside risk.

And when that happens, the highest-quality issues like Wal-Mart will be the market's leaders.

Predicting when this re-pricing of risk will occur is tricky, as the government has repeatedly shown a willingness to keep its stimulus programs going for longer than most had originally anticipated. So betting on a resurgence of quality over junk has to be a long-term bet rather than a short-term one.

But with that thought in mind, I compiled a list of stocks with relatively high financial quality ratings and which are also popular among those advisers on the Hulbert Financial Digest's monitored list with the best long-term records. They are, in descending order of popularity:

*

Microsoft Corporation /quotes/comstock/15*!msft/quotes/nls/msft (MSFT 30.34, +0.42, +1.40%)
*

Johnson & Johnson /quotes/comstock/13*!jnj/quotes/nls/jnj (JNJ 65.14, +0.21, +0.32%)
*

Wal-Mart Stores Inc. /quotes/comstock/13*!wmt/quotes/nls/wmt (WMT 55.07, -0.31, -0.56%)
*

Hewlett-Packard Co /quotes/comstock/13*!hpq/quotes/nls/hpq (HPQ 53.87, +0.24, +0.45%)
*

Pfizer Inc. /quotes/comstock/13*!pfe/quotes/nls/pfe (PFE 17.25, +0.11, +0.64%)
*

International Business Machines /quotes/comstock/13*!ibm/quotes/nls/ibm (IBM 128.76, +1.15, +0.90%)
*

AFLAC Inc. /quotes/comstock/13*!afl/quotes/nls/afl (AFL 55.76, +0.36, +0.65%)
*

Bristol-Myers Squibb Co. /quotes/comstock/13*!bmy/quotes/nls/bmy (BMY 26.25, +0.08, +0.31%)
*

PepsiCo Inc. /quotes/comstock/13*!pep/quotes/nls/pep (PEP 66.36, +0.39, +0.59%)
*

3M Co. /quotes/comstock/13*!mmm/quotes/nls/mmm (MMM 83.49, +0.54, +0.65%)

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

http://www.nytimes.com/2010/04/09/business/09views.html

How can a country support debt of more than 100 percent of its gross domestic product for many years and then suddenly start descending toward insolvency? That question of sovereign debt arithmetic isn’t merely academic. It’s highly relevant to the likes of Greece and Italy.

The answer is that size of the sovereign debt burden is not everything when it comes to keeping up with interest payments. No matter how high the ratio of debt to G.D.P. may be, it does not need to increase as long as the government has two factors going its way: the “primary” budget balance — the balance before interest payments — and the growth rate of nominal G.D.P.

To see how these play out, consider two hypothetical countries. One has a moderate debt load, 50 percent of G.D.P., which carries a 4 percent average interest rate. If the budget is in primary balance, the government will still run a deficit of 2 percent of G.D.P., which is 4 percent (the interest rate) of 50 percent (the debt). As long as nominal G.D.P. grows by 4 percent, the ratio of debt to G.D.P. stays the same.

The other country is highly indebted, with a debt to G.D.P. ratio of 100 percent. Assume it also pays an interest rate of 4 percent. With a primary budget balance, its fiscal deficit is 4 percent of G.D.P. However, as long as nominal G.D.P. keeps growing at 4 percent a year, the ratio of debt to G.D.P. stays the same — 100 percent.

In effect, the highly indebted government doesn’t pay a penalty for its profligacy, as long as growth keeps up and interest rates stay low. Greece, led by George Papandreou, and other heavily indebted countries benefited from such a happy environment for years.

But the equilibrium is fragile. It can be disturbed in three ways: nominal G.D.P. growth can decline, interest rates can go up, or the country can start running a primary deficit. The pain is much worse for highly indebted countries like Greece, which has managed all three at once.

Start with growth. Imagine nominal G.D.P. growth drops to zero. If nothing is done, the debt to G.D.P. ratio will rise by two percentage points in the moderately indebted country, but by four percentage points in the highly indebted one.

Countries can keep that key ratio from increasing, by running primary surpluses to compensate. That means moving from balance to a surplus of 2 percent of G.D.P. for the moderately indebted country, and from zero to 4 percent for the heavily indebted. The higher the debt level, the more the government must tighten its belt.

But such budgetary squeezes put further downward pressure on G.D.P. — making the debt burden even heavier. Imagine that actual G.D.P. falls by a quarter of a percentage point for every budget surplus increase of one percentage point of G.D.P. The 4 percent fiscal squeeze would then knock G.D.P. down by one percentage point in the profligate country, while the modestly indebted country’s G.D.P. would fall half a percentage point.

Next are interest rates. Investors jack up rates to compensate for the risk that the population will not stomach huge budget squeezes. Foreign buyers are likely to be more demanding than patriotic domestic ones. As the proportion of expensive debt increases, the government’s interest bill rises, potentially starting a debt snowball.

Finally, there’s the government’s budget. While the state would ideally be aiming for a budget surplus, recessions normally lead to higher deficits. As business activity drops, tax revenues fall and more people qualify for benefits. This is the worst moment for markets to turn hostile.

When all three factors — economic contraction, higher rates and rising deficits — come at once, they easily start a vicious cycle. If the profligate country has to pay a 6 percent interest rate instead of 4 percent and recession and belt-tightening have cut nominal G.D.P. by 2 percent, a primary surplus of just over 8 percent is required just to keep the ratio of debt to G.D.P. stable.

That is a huge move, and may be too much to bear politically for the sort of country that has historically run big deficits. Investors have good reason to fear some sort of debt workout. They then don’t push up the interest rate at which they are prepared to lend — they stop lending completely.

HUGO DIXON

For more independent financial commentary and analysis, visit www.breakingviews.com.

http://www.nakedcapitalism.com/2010/04/guest-post-fraud-finally-being-discussed-in-polite-company-now-where-are-the-prosecutions.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

As I have repeatedly pointed out, the economy cannot stabilize unless the fraud which led to the crisis is openly discussed.

As Shahien Nasiripour notes today today, Alan Greenspan didn’t think regulators should even pay any attention to fraud:

He didn’t believe that fraud was something that needed to be enforced or was something that regulators should worry about, and he assumed she (Brooksley Born) probably did. And of course she did. I’ve never met a financial regulator who didn’t feel that fraud was part of their mission, but that was her introduction to Alan Greenspan.”

But, this week, Greenspan admitted in testimony to the Financial Crisis Inquiry Commissioner that regulators do need to crack down on fraud:

This week, in response to a question from Financial Crisis Inquiry Commissioner Heather Murren, who asked Greenspan whether subprime lenders should now be supervised by the Federal Reserve, Greenspan said:

“Well, first of all, remember you have to distinguish between supervision and enforcement. A lot of the problems which we had in the independent issuers of subprime and other such mortgages, the basic problem there is that, if you don’t have enforcement, and a lot of that stuff was just plain fraud, you’re not coming to grips with the issue.”

In a paper on the financial crisis he presented last month at the Brookings Institution in Washington, Greenspan did not mention the word “fraud”, in any of its forms, even once in the 66-page presentation.

His prepared remarks this week, though, mentioned it three times.

“It is one thing to promulgate rules, and quite another to successfully implement them. Rules to prevent fraud and embezzlement have failed as often as not. Parenthetically, in the years ahead, we will need far greater levels of enforcement against misrepresentation and fraud than has been the practice for decades,” he told the investigatory panel.

Greenspan also called for “enhanced” enforcement against “misrepresentation and fraud” going forward as one desired part of the government’s arsenal in trying to avoid future crises in which taxpayers are forced to bail out private companies.

And the Wall Street Journal is running an important story showing that all of the big bank primary dealers – not just Lehman – have engaged in fraudulent accounting for years:

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

The fact that the existence of widespread fraud is finally being addressed in polite company is a good first step.

But where are the prosecutions?

Neither happy talk nor propaganda will fix the economy. The governments of the world have spent trillions trying to wallpaper over the fraud, and have become insolvent doing so.

But it’s not working. Indeed, polls show that people no longer trust our economic “leaders”. See this and this.

Only honest talk – and holding the people who committed fraud accountable – will stabilize the economy.

http://stopforeclosurefraud.com/tag/bank-fraud/

’
Mortgage Assignment Fraud – Law Offices of David Stern Commits Fraud on The Court – Case Dismissed WITH Prejudice


Well well well…

Looks like an Assignment of Mortgage was FRAUDULENTLY created by David Sterns office and signed by Cheryl Samons. Who woulda thunk…

“By now the fact that foreclosure mills, pretender lenders and their document mills across the country are perpetrating widespread and systemic fraud on the courts is not news. Well sure major questions remain unanswered such as what will be the ultimate price of all this fraud…as reported previously much of this fraud will go unpunished because much of the evidence is apparently being sent back to the law firms that commit the fraud. (In violation of court rules) But so much is sliding by these days.

We all must do everything we can to bring fraud to the court’s attention and to preserve the evidence when it is found. Attached here is the brilliant work of a Foreclosure Fraud Fighter, Ralph Fisher of Tampa, Florida who shows us what the courts are willing to do when a good attorney makes AND PROVES a case of fraud…..Case dismissed WITH PREJUDICE”.

From the order

The hearing time was set for March 1, 2010 at 3 p.m. for a 20-minute hearing but the Plaintiff failed to appear.

after sounding the halls and after awaiting telephonic communication from the Plaintiff. The Plaintiff still failed to appear. An assistant for Plaintiff s counsel called at about 3:44 p.m. to find out the outcome of the hearing.

Motion to Compel, the court finds that the Plaintiff has failed to produce answers to the Interrogatories for a period of 26 months

The Defendant’s Motion in Limine/Motion to Strike was based on an allegation that the Assignment of Mortgage was created after the filing of this action, but the document date and notarial date were purposely backdated by the Plaintiff to a date prior the filing of this foreclosure action.

The Assignment, as an instrument of fraud in this Court intentionally perpetrated upon this court by the Plaintiff, was made to appear as though it was created and notorized on December 5, 2007. However, that purported creation/notarization date was facially impossible: the stamp on the notary was dated May 19,2012. Since Notary commissions only last four years in Florida (see F .S. Section 117.01 (l )), the notary stamp used on this instrument did not even exist until approximately five months after the purported date on the Assignment.

The court specifically finds that the purported Assignment did not exist at the time of filing of this action; that the purported Assignment was subsequently created and the execution date and notarial date were fraudulently backdated, in a purposeful, intentional effort to mislead the Defendant and this Court. The Court rejects the Assignment and finds that is not entitled to introduction in evidence for any purpose. The Court finds that the Plaintiff does not have standing to bring its action.

IT IS THEREFORE. ORDERED AND ADJUDGED THAT:

The Motion to Compel is granted. As a sanction for egregious failure to comply with discovery Rules the Plaintiff shall be prohibited from presenting the alleged Promissory Note to this Court.

The Plaintiff shall be prohibited from introducing into evidence the alleged Promissory Note.

The Plaintiff’s recording and filing regarding the fraudulent Assignment of Mortgage is stricken, and the Plaintiff is prohibited from entering the Assignment of Mortgage into evidence.

The Motion for Rehearing of Defendant’s Motion to Dismiss is granted and the Motion to Dismiss is granted. The Plaintiff’s complaint is dismissed with prejudice, based on the fraud intentionally perpetrated upon the Court by the Plaintiff.

Moral to the story… ALL assignments are FRAUDULENT.

CHALLENGE EVERYTHING!

GOOD RESOURCE FOR ANYONE DEALING WITH THIS HYDRA.

http://www.nakedcapitalism.com/2010/04/guest-post-bis-says-debt-crisis-caused-by-incompetent-governments-failing-to-save-during-boom-times-or-planning-for-aging-populations-or-contingent-liabilities.html

In a new report, the Bank for International Settlements (BIS) – often called the “central banks’ central bank” – points out that bond investors are not as smart as they think, that Western debt is much higher than officially reported (since contingent liabilities and pension debts are excluded from official numbers), and that the recovery of the world economy may be crushed by fiscal problems.

The report states:

According to the OECD, total industrialised country public sector debt is now expected to exceed 100% of GDP in 2011 – something that has never happened before in peacetime. As bad as these fiscal problems may appear, relying solely on these official figures is almost certainly very misleading. Rapidly ageing populations present a number of countries with the prospect of enormous future costs that are not wholly recognised in current budget projections. The size of these future obligations is anybody’s guess. As far as we know, there is no definite and comprehensive account of the unfunded, contingent liabilities that governments currently have accumulated.

For background on the effect of aging populations on the economy, see this LINK IN ARTICLE.

The report includes the following chart on age-related expenditures by country:

http://3.bp.blogspot.com/_oFZa8yk9ndQ/S79SP4k225I/AAAAAAAAAe4/wnqq6qvFAgk/s1600/Age-Related+Spending.bmp

Ambrose Evans-Pritchard succinctly summarizes BIS’ findings:

Official debt figures in the West are “very misleading” since they fail to take in account the contingent liabilities and pension debts that have mushroomed over recent years.

BIS writes:

More worryingly, the current expansionary fiscal policy has coincided with rising, and largely unfunded, age-related spending (pension and health care costs). Driven by the countries’ demographic profiles, the ratio of old-age population to working-age population is projected to rise sharply. Interestingly, this rise is concentrated in countries such as Japan, Spain, Italy and Greece, which are already laden with relatively high debts (Graph 2, left-hand panel). Added to the effects of population ageing is the problem posed by rising per capita health care costs.

In other words, BIS is slamming the Western nations for failing to budget for their rapidly aging populations and to set aside adequate funds during the boom. As Evans-Pritchard puts it:

BIS lamented the lack of any systematic data on the scale of unfunded IOUs that care-free politicians have handed out like confetti.

(And, of course, America has been spending money on both guns and butter).

Indeed, here are some recent stories about America’s pension crisis:

* Barron’s ran a story on March 15th called “The $2 Trillion Hole: Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states.”

* Huffington Post ran a story April 5th entitled “‘Something’s Got To Give’: Massive Pension Fund Shortfalls Threaten To Bankrupt States”

* World Net Daily ran a story the same day called “America’s future? U.S. cities going bust: Public employee pensions burdening states, localities “

* The Los Angeles Times ran an op-ed on April 6th – written by the special advisor to Califonria Governor Arnold Schwarzenegger for jobs and economic growth – entitled “California’s $500-billion pension time bomb: The staggering amount of unfunded debt stands to crowd out funding for many popular programs. Reform will take something sadly lacking in the Legislature: political courage.”

The BIS report further points out that bond traders overestimate their timing and forecasting skills:

So far, at least, investors have continued to view government bonds as relatively safe. But bond traders are notoriously short-sighted, assuming they can get out before the storm hits: their time horizons are days or weeks, not years or decades. We take a longer and less benign view of current developments, arguing that the aftermath of the financial crisis is poised to bring a simmering fiscal problem in industrial economies to boiling point. In the face of rapidly ageing populations, for many countries the path of pre-crisis future revenues was insufficient to finance promised expenditure.

Further, BIS notes:

The risk that persistently high levels of public debt will drive down capital accumulation, productivity growth and long-term potential growth. Although we do not provide direct evidence of this, a recent study suggests that there may be non-linear effects of public debt on growth, with adverse output effects tending to rise as the debt/GDP ratio approaches the 100% limit (Reinhart and Rogoff (2009b)).

Actually, as Reinhart and Rogoff showed last December, 90 percent is the threshold:

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies…

And, as Forbes noted about America:

Add the unfunded portion of entitlement programs and we’re at 840% of GDP.

And see this and this.

BIS concludes with this bearish scenario:

If countries do not retrench quickly, they will create a market fear of “monetization” that becomes self-fulfilling. “Monetary policy may ultimately become impotent to control inflation, regardless of the fighting credentials of the central bank” it said.

Some states may be tempted to carry out a creeping default by stoking inflation. “The payoff to do this rises the bigger the debt, the longer its average maturity, the bigger the fraction held by foreigners.” The BIS said the danger that any government would consciously take this path is “not insignificant” in the longer run.

Of course, a brutal fiscal purge in every major country at once itself poses a danger. The result would be to crush recovery and tip the world economy back into crisis, making deficits worse again.

Ultimately, though, the primary cause of this acute stage of the global debt crisis is very simple.

As BIS warned in 2008, nations worldwide were bailing out their private banks by transferring toxic risk from the banks onto the sovereigns’ own books. The giant banks are, of course, still drowning in debt and – using real world accounting – insolvent, due to all of their gambling schemes gone wrong and toxic assets. The “too big to fails” all over the world have acted like a drowning man who grabs onto someone else and – thrashing around wildly – ends up drowning both.

I don’t yet have an opinion on whether it’s a good idea or not, but debt repudiation appears to be a growing response to the debt crisis.

OR WE COULD DECLARE PEACE AND SET PROGRESSIVE TAX RATES....

Can America Still be the World's Greatest Power, as the World's Greatest Borrower?

http://www.cbsnews.com/stories/2010/04/08/eveningnews/main6377088.shtml?tag=cbsnewsSectionContent.2

From the surface of the moon, to the factory floor - America's prosperity and power dominated much of the 20th century. But, asCBS News Chief Foreign Affairs correspondent Lara Logan reports, the world has changed.

"The mystique of American power I think is gone," said Aaron David Miller of the Woodrow Wilson International Center for Scholars.

The United States is no longer the sole power towering over the post-Cold War era.

Tell Us What You Think Send us an e-mail.

"It's not so much we're declining, other countries are coming up," said James Baker, Former U.S. treasury secretary, and U.S. secretary of state.

The report card shows America's foundation is in peril. Most alarming? Deficits are projected to average over $900 billion a year through 2020. The average? $976 billion.

The nation's debt is the largest in history: $12 trillion and counting. That's over $80,000 for every American worker.

CBS Reports: Where America Stands

China is now the largest holder of U.S. debt. It's also the largest exporter and within the next five to seven years, it's expected to surpass the U.S. as the largest manufacturer in the world.

The Problem:

The problem for America is that its greatness has always been rooted in its economic dominance.

"We're in a real pickle," said Baker. "We will not be as important on the world scene if we continue to be a tremendously large debtor nation."

That debt has forced the U.S. to keep borrowing from foreign countries.

"Can the world's greatest power remain the world's greatest power and also be the world's greatest borrower?" Miller asked. "I don't think so."

Aaron David Miller served as an advisor to six secretaries of state and has witnessed a decline in American diplomatic power.

"We can't morally preach anymore about the virtues of American-style capitalism when we can't fix our own dysfunctional broken house."

And seemingly can't win two wars, Miller says, that have already cost over $1 trillion.

"We can't fix these places and yet we can't walk away from them," Miller said. "For a great power, that's the worst place to be."

Solutions:

The solution is to accept that many nations now have a seat at the table and can influence world outcomes.

Atlantic Magazine's James Fallows just returned after living in China for three years. "It was easier long ago to say well you have a couple big powers. Now you have a lot of big powers."

"China has a very, very long way to go before they have the dimensions of a national power that the U.S. does - maybe never," Fallows said.

Is American power on the decline?

"Not really, things are changing," Fallows replied. "Other countries are getting relatively stronger but it doesn't necessarily mean that the U.S. will decline in any way that really matters."

Fallows believes the changing world order will be a catalyst for an American comeback - much as fear of Soviet domination in the Sputnik era galvanized American education.

"The fact that the U.S. success will eventually end doesn't mean it has to end now - or 10 years from now - or 100 years from now if we do the right things," Fallow said.

What about that Chinese owned debt?

"If the U.S. dollar plummets in value - we suffer and so do the Chinese," Fallow said.

"Their debt is worth nothing then?" Logan asked.

"Yes, exactly," Fallows said.

Baker believes America's absolute power is still intact, for now.

"When I was treasury secretary everybody was writing that Japan Inc. was going to take over the world," Baker said. "America was in permanent decline."

We're in the same situation now with people talking about America's decline.

"I don't think it's going to happen provided - one big proviso - that we deal with this debt bomb," Baker said.

If we don't, Baker said, "Then it might happen."

The U.S. still remains the most important single power in the world. But in the time it took to watch this report, the national debt grew by nearly $18 million.

http://www.informationclearinghouse.info/article25181.htm

Alan Greenspan's performance before the Financial Crisis Inquiry Commission was a real Oscar winner. At no time was the ex-Fed chairman in trouble, and he was able to showcase the full repertoire of fake emotions for which he is renowned. He was alternately condescending, professorial, combative, engaging, and acerbic. It was vintage Greenspan from start to finish; the tedious jabber, the crusty rejoinders, the endless excuse-making. At 80, Maestro still hasn't lost his touch. No one laid a glove on him, which is precisely the problem.

It's galling that, after everything that's taken place, Greenspan is still treated like royalty; still given a platform so he can run-circles around his critics and make them look like fools. That's not what the public wanted, another playful sparring-match with Chairman Flim-flam. They wanted to see him grilled, interrogated, badgered, threatened and humiliated. And they want to see some trifling sign of remorse for the ruin he's brought on the country. But there was no remorse; no restless squirming, no flickering look of self-doubt, no sudden outburst of regret. Nothing at all. Just the brazen buck-passing of a self-admiring old man trying to pluck his reputation from the ashheap.

No one person is more responsible for the financial crisis than Alan Greenspan. He can say whatever he likes, but the 8.5 million people who spend their days shuffling in unemployment lines have him to thank. And that's doubly true for the 300,000 families who lose their homes every month or the millions of people now scrimping by on food stamps. They can blame Maestro for the mess they're in.

In his testimony, Greenspan blamed subprime securitization, Fannie Mae and Freddie Mac, the fall of the Berlin Wall, too much saving in China etc. etc. etc. Everyone is to blame; everyone except Greenspan that is, the Teflon Fed chief.

Greenspan claims he never saw the housing bubble. It's a familiar refrain which goes something like this: "Bubble?" "What bubble?" "Who saw a bubble?" "Who said anything about a bubble?" "What could we do?" "How could we stop it?" "Who could have known?"

But then in the next breath, he admits he saw the bubble, but didn't think he could persuade Congress to do anything about it. Go figure? Here's the quote:

GREENSPAN: "In that midst of period of expanding home ownership... Had we said we're running into a bubble and we'll have to start to retrench, Congress would say, we haven't a clue what you are talking about."

Interesting, isn't it? Greenspan has so many excuses, he lets the committee decide which ones sound believable. It's like an exam that's "multiple choice." And, notice how he shifts the blame onto Congress now? Where's your pride, man?

The best exchange of the day was between Greenspan and Brooksley E. Born, the former commodities regulator who tried to stop Greenspan and Co. from deregulating derivatives, but ultimately failed. Born lost the battle and eventually her job. Here's an extended clip from the hearings which shows Greenspan's support for the lethal financial instruments which triggered the crisis.

Brooksley Born: "In your recent book you describe yourself as an outlier in your libertarian opposition to most regulation. Your ideology has essentially been that financial markets, like the OTC derivatives market, are self regulatory and that government regulation is either unnecessary or harmful. You’ve also stated that, as a result of the financial crisis, you have now found a flaw in that ideology.

You served as chairman of the Federal Reserve Board for more than 18 years, retiring in 2006, and became, during that period, the most respected sage on financial markets in the world. I wonder if your belief in deregulation had any impact on the level of regulation over the financial markets in the United States and in the world. You said that the mandates of the Federal Reserve were monetary policy, supervision and regulation of banks and bank holding companies, and systemic risk. You appropriately argued that the role of regulation is preventative.

But, the Fed utterly failed to prevent the financial crisis.

The Fed and the banking regulators failed to prevent the housing bubble. They failed to prevent the predatory lending scandal. They failed to prevent our biggest banks and bank holding companies from engaging in activities that would bring them to the verge of collapse, without massive taxpayer bailouts. They failed to recognize the systemic risk posed by an unregulated over-the-counter derivatives market and they permitted the financial system and the economy to reach the brink of disaster.

You also failed to prevent many of our banks from consolidating and growing into gigantic institutions that are now today too big and/or too interconnected to fail. Didn’t the Federal Reserve system fail to meet its responsibilities – failed to carry its mandate?"

Greenspan replied, “The notion that somehow my views on regulation were predominant and effective at influencing the Congress is something you may have perceived. But it didn’t look that way from my point of view.”

So, Greenspan expects us to believe that the reason he refused to regulate the OTC derivatives markets, was because no one would have paid attention to him? Is that it? That the congress would have regarded "The Greatest Central Banker of all Time" as some piddling, paper-shuffling bureaucrat who could be dismissed with a wave of the hand? What nonsense. What a shameful, cowardly man. Instead of regret or contrition, all he thinks about is covering his ass.

http://dailyreckoning.com/greenspan-vs-bernanke-the-follies-of-fed-chairmen/

Poor ol' Alan...

We almost felt sorry for him...

"Maestro mauled..." said the headline in The Financial Times. We wanted to maul him many times. But now that others were doing it...it made us feel sympathetic to the old scalawag.

Didn't the Alan Greenspan Fed's failure to curb subprime lending deserve to go into the 'oops' category, demanded chief tormentor Phil Angelides.

Mr. Greenspan defended his legacy. He was right 70% of the time, he said. The other 30% of the time he was wrong.

Hey, that's not bad. Pity it's not true. Greenspan was wrong 90% of the time - at least.

He thought those fancy derivatives actually spread the risk of failure...and made the system more stable.

He thought those subprime loans helped people of modest incomes realize the goal of home ownership.

He saw no risk in keeping the key rate at an 'emergency' low level...years after the emergency had passed.

But he hit one of those magic moments last week...when he was finally right about something. He declared that the yield on the 10-year note was "the canary in the coal mine." This week, the canary wobbled...but stayed on his feet. He's still standing...but looking a little peaked. More below...

While the former Fed chief was in the spotlight at The Financial Times yesterday, the present Fed chief was front-page news over at The Washington Post. Alan Greenspan is a scoundrel, no doubt about that. But he was, in some ways, a better Fed chief than Bernanke.

The trouble with Bernanke is that he doesn't know his limitations. He actually believes the Fed can look at the possible outcomes going forward and improve them before they come out.

"Fed chief sounds a deficit warning," is the headline. He said Americans faced a "difficult choice." It's between higher taxes and fewer entitlement services, he said.

This doesn't seem like a difficult choice to us. We'd gladly accept fewer "services" from the feds if they'd lay off on the taxes. But that's because we're in the half of the US households that actually pays taxes.

No kidding; the report was in yesterday's news:

"Almost one half of US households pay no federal income tax."

So, welcome to the beginning of the end. If half the citizens get bread and circuses without paying for them, you can bet that the whole shebang is headed for destruction. The math doesn't work. Half the people have no interest in curbing taxes or spending. Obviously, those people would prefer to raise taxes - on us - rather than give up their free pills and retirement benefits. Even among the half that does pay taxes, most pay very little - less than they get back in 'services.'

Meanwhile, the 'rich' get socked hard. According to the reports we're seeing on scurrilous blogs and from our usually unreliable sources, the tax burden on the rich is set to rise over 60% of income - thanks to the health care charges they will have to bear.

By the way...the whole thing is a fraud. The services, that is...

Here's how it works. In 2007, the private sector finally blew itself up - thanks largely to all that debt offered by Wall Street and encouraged by the Alan Greenspan/Ben Bernanke Fed.

So then...in comes the Fed again...and the US government...wearing white hats and pretending to save the situation. How? By bringing more of the economy under their control!

As far as we can tell, the last successful government program was WWII. And that was only successful because the competitors' programs were also run by government. But that doesn't stop them...

http://dailyreckoning.com/us-economic-boat-sinking-in-the-money-flood/

here is Ben Bernanke talking tough. 'If you don't straighten up,' he seemed to say, 'you're going to end up like Greece.'

Wait...this has a familiar ring to it. This is the same Ben Bernanke who is holding rates near zero to make it easier for the feds NOT to straighten up. Like those of his predecessor, Bernanke's centrally- controlled lending rates are sending out just the wrong signal at just the wrong time.

And like Greenspan, he can get away with it...for now.

But maybe not for long. On Monday, US T-note yields ran over 4%. "The fun's over," said old-timer Richard Russell. It looked like the end had come for the long bull market in bonds. Bond yields have been going down since '81. But they seemed to hit bottom near the end of 2008. What we're seeing now - possibly - is the beginning of the long march in the other direction.

This seemed even more likely because at the end of March the Bernanke Fed lost one of its pumps. It can no longer buy up the toxic mortgage- backed bonds of Wall Street, thereby giving the banks money to buy US Treasury debt.

Still, on Wednesday, threats of more trouble from Greece sent investors towards US bonds for safety.

"Greece Rescue Not Going According to Plan," was the headline at Bloomberg.

"Demand strong in US 10-year Treasury debt sale," reported The Financial Times.

But by yesterday, it looked like the plan for US debt was not going well either.

"Treasuries decline after $13 billion auction of 30-year bonds," said another Bloomberg report.

Jobless claims unexpectedly rose last week. What do you expect? This is a Great Correction. Learn to love it.

"China offers high-speed rail to California," says The New York Times. Get used to that too. Who's got the money? Who's got the new technology? Who's got the engineers...the people who actually know how to do something.

Hey China...let's make a trade. We'll give you 1 million lawyers for 100,000 engineers. Or, how about 20,000 lobbyists for one good metallurgist? Heck...we'll throw in 535 members of Congress.

Hold the Congressmen? Okay...guess we're stuck with them.

Regards,

Bill Bonner,
for The Daily Reckoning

I GOT NEWS FOR BONNER--AMERICA'S GOT THE ENGINEERS--BUT SHE'S STARVING THEM, WHICH IS WHY THEY AREN'T PAYING TAXES ANYMORE....

Doc Brown: Tell me, Future Boy, who's President of the United States in 1985?
Marty: Ronald Reagan.
Doc Brown: Ronald Reagan? The actor? Then who's vice-president, Jerry Lewis? I suppose Jane Wyman is the First Lady? And Jack Benny is Secretary of the Treasury!

_________________________

The quote seems especially appropriate for a political website. And I think many of us still share Doc Brown's outraged surprise at the idea of Ronald Reagan as President. Jack Benny as Secretary of the Treasury could furnish a whole movie's worth of comedy. Picture the government shutting down because Jack refuses to write any checks for anything. He would no doubt transfer the nation's gold supply to his own subterranean vault because Fort Knox isn't as secure. And Jack's picture would end up on the currency, every denomination.

What just struck me about that quote, though, is the part about Jane Wyman being first lady. The conversation between Marty and Doc Brown took place in 1955, 7 years after Jane Wyman and Ronald Reagan divorced.

Why, I wasn't aware of Sandra Bullock's crisis with Jessie James until I was sopping up one of my own projects with an old newspaper.

Hmm... I suppose that's what happens when you marry a guy who robs banks and hides in caves for a living. :/

http://www.informationclearinghouse.info/article25179.htm

Government debt in Greece is just the first in a series of European debt bombs that are set to explode. The mortgage debts in post-Soviet economies and Iceland are more explosive. Although these countries are not in the Eurozone, most of their debts are denominated in euros. Some 87% of Latvia’s debts are in euros or other foreign currencies, and are owed mainly to Swedish banks, while Hungary and Romania owe euro-debts mainly to Austrian banks. So their government borrowing by non-euro members has been to support exchange rates to pay these private-sector debts to foreign banks, not to finance a domestic budget deficit as in Greece.

All these debts are unpayably high because most of these countries are running deepening trade deficits and are sinking into depression. Now that real estate prices are plunging, trade deficits are no longer financed by an inflow of foreign-currency mortgage lending and property buyouts. There is no visible means of support to stabilize currencies (e.g., healthy economies). For the past year these countries have supported their exchange rates by borrowing from the EU and IMF. The terms of this borrowing are politically unsustainable: sharp public sector budget cuts, higher tax rates on already over-taxed labor, and austerity plans that shrink economies and drive more labor to emigrate.

Bankers in Sweden and Austria, Germany and Britain are about to discover that extending credit to nations that can’t (or won’t) pay may be their problem, not that of their debtors. No one wants to accept the fact that debts that can’t be paid, won’t be. Someone must bear the cost as debts go into default or are written down, to be paid in sharply depreciated currencies, but many legal experts find debt agreements calling for repayment in euros unenforceable. Every sovereign nation has the right to legislate its own debt terms, and the coming currency re-alignments and debt write-downs will be much more than mere “haircuts.”

There is no point in devaluing, unless “to excess” – that is, by enough to actually change trade and production patterns. That is why Franklin Roosevelt devalued the US dollar by 75% against gold in 1933, raising its official price from $20 to $35 an ounce. And to avoid raising the U.S. debt burden proportionally, he annulled the “gold clause” indexing payment of bank loans to the price of gold. This is where the political fight will occur today – over the payment of debt in currencies that are devalued.

Another byproduct of the Great Depression in the United States and Canada was to free mortgage debtors from personal liability, making it possible to recover from bankruptcy. Foreclosing banks can take possession of collateral real estate, but do not have any further claim on the mortgagees. This practice – grounded in common law – shows how North America has freed itself from the legacy of feudal-style creditor power and the debtors’ prisons that made earlier European debt laws so harsh.

The question is, who will bear the loss? Keeping debts denominated in euros would bankrupt much local business and real estate. Conversely, re-denominating these debts in local depreciated currency will wipe out the capital of many euro-based banks. But these banks are foreigners, after all – and in the end, governments must represent their own home electorates. Foreign banks do not vote.

Foreign dollar holders have lost 29/30th of the gold value of their holdings since the United States stopped settling its balance-of-payments deficits in gold in 1971. They now receive less than a thirtieth of this, as the price has risen to $1,100 an ounce. If the world can take that, why shouldn’t it take the coming European debt write-downs in stride?

There is growing recognition that the post-Soviet economies were structured from the start to benefit foreign interests, not local economies. For example, Latvian labor is taxed at over 50% (labor, employer, and social tax) – so high as to make it noncompetitive, while property taxes are less than 1%, providing an incentive toward rampant speculation. This skewed tax philosophy made the “Baltic Tigers” and central Europe prime loan markets for Swedish and Austrian banks, but their labor could not find well-paying work at home. Nothing like this (or their abysmal workplace protection laws) is found in the Western European, North American or Asian economies.

It seems unreasonable and unrealistic to expect that large sectors of the New European population can be made subject to salary garnishment throughout their lives, reducing them to a lifetime of debt peonage. Future relations between Old and New Europe will depend on the Eurozone’s willingness to re-design the post-Soviet economies on more solvent lines – with more productive credit and a less rentier-biased tax system that promotes employment rather than asset-price inflation that drives labor to emigrate. In addition to currency realignments to deal with unaffordable debt, the indicated line of solution for these countries is a major shift of taxes off labor onto land, making them more like Western Europe. There is no just alternative. Otherwise, the age-old conflict-of-interest between creditors and debtors threatens to split Europe into opposing political camps, with Iceland the dress rehearsal.

Until this debt problem is resolved – and the only way to resolve it is to negotiate a debt write-off – European expansion (the absorption of New Europe into Old Europe) seems over. But the transition to this future solution will not be easy. Financial interests still wield dominant power over the EU, and will resist the inevitable. Gordon Brown already has shown his colors in his threats against Iceland to illegally and improperly use the IMF as a collection agent for debts that Iceland doesn’t legally owe, and to blackball Icelandic membership in the EU.

Confronted with Mr. Brown’s bullying – and that of Britain’s Dutch poodles – 97% of Icelandic voters opposed the debt settlement that Britain and the Netherlands sought to force down the throat of Allthing members last month. This high a vote has not been seen in the world since the old Stalinist era.

It is only a foretaste. The choice that Europe ends up making will likely drive millions into the streets. Political and economic alliances will shift, currencies will crumble and governments will fall. The European Union and indeed, the international financial system will change in ways yet to be seen. This will be especially the case if nations adopt the Argentina model and refuse to make payment until steep discounts are made.

Paying in euros – for real estate and personal income streams in negative equity, where the debts exceed the current value of income flows available to pay mortgages or for that matter, personal debts – is impossible for nations that hope to maintain a modicum of civil society. “Austerity plans” IMF and EU style is an antiseptic, technocratic jargon for life-shortening and killing impact of gutting income, social services, spending on health on hospitals, education and other basic needs, and selling off public infrastructure for buyers to turn nations into “tollbooth economies” where everyone is obliged to pay access prices for roads, education, medical care and other costs of living and doing business that have long been subsidized by progressive taxation in North America and Western Europe.

The battle lines are being drawn regarding how private and public debts are to be repaid. For nations that balk at repayment in euros, the creditor nations have their “muscle” waiting in the wings: the credit rating agencies. At the first sign a nation is balking in paying in hard currency, or even at the first hint of it questioning a foreign debt as improper, the agencies will move in to reduce a nation’s credit rating. This will increase the cost of borrowing and threaten to paralyze the economy by starving it for credit.

The most recent shot was fired n April 6 when Moody’s downgraded Iceland’s debt from stable to negative. “Moody’s acknowledged that Iceland might still achieve a better deal in renewed negotiations, but said the current uncertainty was hurting the country’s short-term economic and financial prospects.”<1>

The fight is on. It should be an interesting decade.

Prof. Micheal Hudson is Chief Economic Advisor to the Reform Task Force Latvia (RTFL). His website is www.michael-hudson.com .

This is the best 2-minute video about the financial crisis

4/6/10 Graydon Carter and Michael Lewis: The Unabridged Conversation About the Financial Collapse

Recently Vanity Fair editor Graydon Carter and V.F. contributing editor Michael Lewis sat together onstage in front of an intimate crowd at the Museum of Modern Art in New York City and discussed Lewis’s new book, The Big Short: Inside the Doomsday Machine, which tackles the question of what caused the U.S. economy to tank. (It was excerpted in the April issue.) Among those who attended the event were writers Tom Wolfe and Gay Talese, New York City police commissioner Ray Kelly, and Time Inc.’s John Huey. Now you too can hear the entire conversation between Carter and Lewis—just click here. But be careful visiting that link. You will probably get sucked into Lewis’s hour-long talk, just as the House Republican book group became engrossed in a lecture Lewis gave about the financial collapse. “I was supposed to be there for an hour,” says Lewis in the clip above, referring to his visit with the Hill staffers. “I was there for almost three. And nobody left. And their questions were increasingly: ‘Oh my God, Goldman Sachs did what? A.I.G. did what?’ They didn’t understand it ... The minute they started to understand, they were outraged. And I think the more things are explained, the more outraged people will get.”

http://www.vanityfair.com/online/daily/2010/04/michael-lewis-tk.html

The video about is excerpted from this series of 8 videos from the hour long interview
http://www.vanityfair.com/video?videoID=76009970001&lineupID=27333652001

http://old.thislife.org/extras/radio/355_transcript.pdf


AND THIS IS THE EPISODE THAT AIRED SATURDAY-- WHAT PART I CAUGHT WAS very INTERESTING----

http://www.thisamericanlife.org/radio-archives/episode/405/inside-job


AUDIO ARCHIVES:

http://www.thisamericanlife.org/radio-archives

Thanks, This American Life comes on again at 4 on our NPR. Missed it yesterday.


edit to add

4/9/10 A Show Tune About A Hedge Fund: 'Bet Against The American Dream'


Planet Money, ProPublica and This American Life collaborated on a project that's airing this weekend on This American Life. It's a story about a hedge fund called Magnetar that made millions of dollars when the housing market collapsed.

The show includes a lot of in-depth investigative reporting. It also includes this song, which was written by Robert Lopez, one of the guys behind Avenue Q.

click link to hear the song and video!
http://www.npr.org/blogs/money/2010/04/americandream.html

and 2 more videos at the above link

The Startup: HomeField Pitch
http://vimeo.com/10379538

NYC3.0 Jay Levy Interview
http://vimeo.com/9787235

AS WAS the "No Visibility Ahead" panel discussion below it with Stiglitz, Meredith Whitney, Sarkozy from Carlyle, Jack Welch and Austan Goolsbee. Thanx!!!

No Visibility Ahead
series of 7 videos

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=433x266134#266136

...shakes head sadly...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8131767


*********


I know what it feels like to be in this position, to be "grateful" for the crumbs they throw us. But that doesn't mean I have to like it or encourage it. The issue with the agency I work through and the software-conversion-from-hell-that-is-sinking-into-deeper-and-deeper-circles-of-the-pit has been resolved. I don't know about any of the other indies, but at least I will not be forced to take on more work than I can reasonably handle or want. I lost sleep over it and I ate too much over it, but it's now resolved.

And something else is resolved. I'm going to try to go back into the field I left in 1996. I don't need to give up the day job for it, nor give up my various artistic endeavors. In fact, this will compliment the artsy-fartsy stuff and maybe, just maybe, bring in a little cash. Even if it doesn't, it's something that I've missed emotionally for a long time and I think the time is right for me to go back. Sorry for all the drama, my dear dear friends, but drama is part and parcel of the it. :evilgrin:

No, I won't be leaving you, and I'm still running for president. And I may even be more tart around here than you've been accustomed to.


Tansy Gold

Anyway, you are a Survivor, Tansy, and a Winner. Good to hear you've got it still.

I am feeling remarkably relaxed, too. Maybe there's been a change around the world?

A MEASURED CRITIQUE OF THE PRESIDENT'S ABILITIES AND ALL THE PRESIDENT'S MEN

http://www.marketwatch.com/story/how-obamacare-is-killing-financial-reform-2010-03-02

Barack Obama surfed into office on a wave of financial panic. A year later, he's ended up dry but the rest of us are still looking for a life preserver.

So, what happened?

Instead of making financial reform and the economy his first priority, the president chose to follow through on a domestic agenda built for better times. He went to work on health care, high-speed rail, green technology and Iraq. He put financial reform in the hands of people who contributed to the problem.

The president's choices reflect a lack of understanding of Wall Street and its relationship with Main Street. It shouldn't come as a surprise; Obama is a constitutional law professor and civil rights attorney. His background is politics and public policy. He's a consensus builder. These strengths serve him well when he pushes his non-financial domestic agenda -- such as reducing the U.S. nuclear arsenal or merit pay for teachers.

Every president comes to the job with strengths, but if anything, the first year has shown us that Obama's are mismatched with the problems the country faces: a broken credit system, the failure of regulation, the misuse of derivatives and the battle between traders and investors for the soul of the stock market.

On these fronts, the president is either in over his head or his heart isn't in the fight -- or both.

It doesn't have to be this way. A president doesn't have to be a Renaissance man, knowledgeable in all things, as long as he surrounds himself with the right people. But in this regard, Obama has fallen short, too.

Market Static Signals

Once-clear leading economic indicators such as the Treasury yield curve are now widely disputed. But what growth trend is priced into stocks?

He named Laurence Summers, a former Treasury Secretary and chief economist at the World Bank to be the director of the National Economic Council. Summers is a party favorite, but he has a history of kow-towing to Wall Street. Summers was paid $5.2 million from D.E. Shaw in 2008 along with nearly $2.77 million in speaking fees paid by the likes of J.P. Morgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. See story on Summers' Wall Street compensation: LINK IN ARTICLE

The wrong people

When Summers was at Treasury between 1999 and 2001, Summers fought regulation of derivatives contracts and called critics "misguided." In 1998, when he was still deputy Treasury Secretary under Robert Rubin, Summers told Congress that only sophisticated financial institutions would use derivatives such as credit default swaps. Read Summers' 1998 testimony LINK IN ARTICLE.

And he was right; Societe Generale and Summers' pals over at Goldman Sachs got a nice return on their investments.

It's important to note that while Summers hasn't really addressed his earlier stance, many have. Former Federal Reserve Chairman Alan Greenspan admitted he made mistakes. Arthur Levitt, the former chairman of the Securities and Exchange Commission said he "could have done much better."

But Obama's bum picks don't stop with Summers. Timothy Geithner has been a lightning rod for criticism over the government's poor negotiating with Wall Street banks over the terms of the bailout packages, especially the $180 billion lifeline handed to American International Group Inc. and its counterparties. He's also lost much needed credibility with an inner circle made up of Wall Street professionals.

Obama picked Warren Buffett to serve on the financial crisis panel led by Paul Volcker. Buffett has huge stakes in three U.S. banks: American Express, Goldman and Wells Fargo & Co. He also has a stake in General Electric Co., a company many believe would have failed if not for government intervention in the commercial paper market.

The right people

It's unclear why Obama picked Geithner, Summers and Buffett to be among his advisers. Maybe they were political supporters. Perhaps they were recommended, maybe the president was steered wrong. He could have pulled the names out of a hat.

There certainly wasn't a shortage of available candidates. Among them is Brooksley Born, the former head of the Commodity Futures Trading Commission who pushed for derivative regulation. There's Phil Angelides, the former California state treasurer, who played hardball with Wall Street interests. John Allison, the former chief executive of BB&T Corp., has been outspoken about the abusive practices of Wall Street.

Born and Angelides are members of the Financial Inquiry Commission, a panel that was picked by Congress. See the commission LINK IN ARTICLE.

Obama did have the good sense to pick Volcker to lead his economic advisory board. Obama also backed Volcker's list of reforms, though support from the White House is lacking as that plan is ripped apart in Congress.

As a result, we have a quagmire economy where Wall Street keeps doing what it has always done except now it's financed by the government. The $1.2 trillion dedicated to supporting the markets and providing bailouts has handicapped the effort Obama really believes in: health care.

Ultimately, the failure of the administration to move on the agenda it wants, may force it to deal with the agenda America so badly needs addressed.

David Weidner covers Wall Street for MarketWatch.

http://www.nytimes.com/2010/04/11/opinion/11rich.html

Greenspan was testifying to the commission trying to pry loose the still incomplete story of how the American economy was driven at full speed into its iceberg. He was eager to portray himself as an innocent bystander to forces beyond his control. In his rewriting of history, his clout in Washington was so slight that he was ineffectual at “influencing the Congress.” The “roots” of the crisis, he lectured, dated back to the fall of the Berlin Wall in 1989. In other words: Wherever the buck stops, you had better believe it’s not within several thousand miles of the Oracle. As he has previously said in defending his inability to spot the colossal bubble, “Everybody missed it — academia, the Federal Reserve, all regulators.”

That, of course, is not true. In last Sunday’s Times, one of those who predicted the bubble’s burst — Michael Burry, an investor chronicled in “The Big Short” by Michael Lewis — told in detail of how Greenspan and others in power “either willfully or ignorantly aided and abetted” the reckless boom and the ensuing bust. But Greenspan is nothing if not a representative leader of his time. We live in a culture where accountability and responsibility are forgotten values. When “mistakes are made” they are always made by someone else.

This syndrome is hardly limited to the financial sector. The Vatican hierarchy and its American apologists blame the press, anti-Catholic bigots and “petty gossip” for a decades-long failure to police the church’s widespread criminal culture of child molestation. Michael Steele, the G.O.P. chairman, has tried to duck criticism for his blunders by talking about his “slimmer margin” of error as a black man. New York’s dynamic Democratic duo of political scandal, David Paterson and Charles Rangel, have both attributed their woes to newspapers like The Times, not their own misbehavior.

Such is our current state of national fecklessness that the gold medal for prompt contrition by anyone on the public stage belongs, by default, to David Letterman. He wasted little time in telling a national audience point blank that he had done “something stupid,” hurt those he loved and had a “responsibility” to “try to fix it.” In the land of Rod Blagojevich and Tiger Woods, the candid late-night talk show star is king...

TIGER WOODS BLATHER....

...Former Bush propagandists will never lack for work in this climate. It’s remarkable how often apologists for Wall Street’s self-inflicted calamity mirror the apologists for Washington’s self-inflicted calamity of Iraq. In the case of that catastrophic war, its perpetrators and enablers almost always give the same alibi: “Everyone” was misled by the same “bad intelligence” about Saddam Hussein’s W.M.D. Hence, no one is to blame and no one could have prevented the rush to war.

That, of course, is no more true than Greenspan’s claim that “everyone” was ignorant of the potentially catastrophic dangers in the securitization of subprime mortgages. There were dissenters in the press, intelligence agencies and Congress who did doubt the W.M.D. evidence and asked tough questions akin to those asked by financial apostates like Michael Burry during the housing bubble. But these dissenting voices were either ignored, ridiculed or censored in the feverish rally to war just as voices like Burry’s were marginalized in the feverish rally of the Dow.

In the crash’s aftermath, those who created, sold and hyped mortgage-backed securities and exotic derivatives (“financial weapons of mass destruction,” as Warren Buffett called them) are just as eager to escape accountability as those who peddled Saddam’s nonexistent nukes. In an appearance at the 92nd Street Y in New York last month, the former Citigroup guru Robert Rubin floated the same talking points as Greenspan. He described Wall Street’s meltdown as “a crisis that virtually nobody saw coming,” citing regulators, auditors, analysts and commentators. It seems they were all the passive dupes of AAA ratings from Moody’s and Standard & Poor’s on toxic subprime assets, just as all those Iraq cheerleaders were innocently victimized by the bad C.I.A. intelligence on Saddam’s assets.

No top player in the Bush administration has taken responsibility for his or her role in selling faulty intelligence products without exerting proper due diligence. There have been few unequivocal mea culpas from those who failed in their oversight roles during the housing bubble either — whether Greenspan, the Bush Treasury Secretary Henry Paulson or Timothy Geithner in his pre-Obama incarnation leading the New York Fed.

In his own testimony before the Financial Crisis Inquiry Commission last week, Rubin took no responsibility for his record, as Clinton Treasury secretary, in opening the floodgates of deregulation that would fatten his wallet in his post-Washington migration to Citigroup. Nor did he own up to his role as a proselytizer for increased risk at that mammoth bank, where the bad bets would ultimately require a $45 billion taxpayers’ bailout. Rubin maintains that he had no significant operational responsibility as chairman of Citigroup’s executive committee — a role that paid him well over $100 million while there. But as Roger Lowenstein writes in his new book, “The End of Wall Street,” Rubin’s responsibilities did include writing a letter to shareholders in early 2007 for the Citigroup annual report. In sharp contrast to Jamie Dimon’s contemporaneous letter to shareholders at JPMorgan Chase — which darkly confronted potential “negative scenarios” from “recent industry excesses” — Rubin glossed over any gathering clouds.

Last week Rubin testified he “deeply” regretted what happened, but his invocation of collective guilt — “we all bear responsibility” — deflected any accounting for his own individual actions. Even Blagojevich did better than this in his new role as a contestant on the reality show “Celebrity Apprentice.” When Donald Trump “fired” him a week ago, the former Illinois governor at last said, “I take full responsibility.”


.....Obama has been less forceful in stewarding a new era of responsibility when it comes to adjudicating unresolved misdeeds in the previous White House. “Turn the page” is his style, even if at times to a fault. Many of the Bush national security transgressions, including the manipulation of the case for war, are rapidly receding into history and America’s great memory hole.

The president will not have the luxury of mass amnesia when it comes to the recent economic past. The tax-free Iraq war, as cunningly conceived by the Bush White House, directly affected only those American families whose sons and daughters volunteered to fight it. But the Great Recession has affected nearly everyone. Most of its victims are genuinely innocent bystanders who lost their jobs and savings while financial elites cashed in on the crash.

Both as policy and politics, a serious reckoning for those who gamed the system is a win-win. Yet the fear that the Obama administration is protecting its friends persists. On the same morning that Rubin testified last week, Eamon Javers of Politico wrote about his continued influence on his many acolytes in the White House. That includes Geithner, whom Rubin talked with repeatedly in the weeks before the president released his financial regulatory reform proposal last June.

Americans still waiting on Main Street for the recovery that lifted Wall Street once invested their hopes in Obama. Getting the new era of responsibility only 70 percent right won’t do.

I watched a neighbor attempt to die tonight, and then bought two legs of lamb at $2/lb.

The neighbor is dying of cancer, and her daughter in California asked me to visit. It appears that the long deterioration is speeding up, so the daughter will scramble for a ticket. The rest of the family is in Europe for a wedding. Life is what happens while you're blogging.

There's a lot to digest this week, and the inbox is nowhere near empty. Next week should be interesting, based on the way things are piling up on the shoulders of the guilty. As in my neighbor's life, so too in the economy--the long deterioration is speeding up.

Why anyone still confuses Wall St. with Main St. is a mystery, at this point. I guess it will take another earthquake to shake the complacent.

Speaking of which, Spain had a 5.9. Hope Ghost Dog is all right. It was outside Granada. Hope the Alhambra is all right. It is a magnificent sight.