Bear Markets Over Time

graph The Big Picture. Click for LARGE.

Historical Graphing --> Surfing the Present --> Various Futures

What interpretation do you make based on the above graph
plus your understanding of the world and the markets?

Open Thread.

There's more...

Bailout Bill Passes: Obama & Pelosi Whip Votes

"Open Mouth Buddha, shedding Black Tears" Click for LARGE.
2007, Gallery #19, # 6915 - Kazuya Akimoto Art Museum.

It's Over -- We lost.

Obama and Pelosi made damn sure the bill passed.

Thanks Gidget. We sure appreciate that.

Congresswoman Donna Edwards says Obama personally promised her, in exchange for her "Yes" vote, that they would revisit the bankruptcy provisions later. We shall see. I think the Congresswoman, whom I respect, is placing WAY too much faith in Obama, and not enough faigh in his demonstrated history with FISA.

That there is no bankruptcy provision now, means there won't be one later. Obama will apologize, and that will be that. I'm holding 2:1 odds for friends (so don't write, trying to get some of my action.)

I give you the wisdom of Ian Welsh.

Firedoglake

Fundamentally it's the Treasury Secretary to spend pretty much as he chooses, with meaningless oversight, up to 700 billion or the debt limit. In theory it's "whichever is less" in practice it's going to be "whichever is more". Add to mark to the end of mark to market, and the move to mark to "whatever the bank says its worth" and banks are going to be allowed to stay alive no matter whether they're solvent or not as long as their cash flow doesn't go so far negative it can't be papered over the world's favorite wallpaper, the US buck. Zombie banks plus all the money flooding into trying to stop deleveraging from wiping out said financial institutions means this is a Japanification plan.

Japan had its own bubble back in the 80's. When it popped the Japanese decide that they would not force banks to write down their losses. Instead they left them on the books. Those of you who are old enough will remember when Japan was the economy of the future, who built the best stuff and were destroying everyone else. After the bubble popped that all ended. The world's most vibrant economy went into a long economic slump from which it never recovered. This wasn't a classic depression—there wasn't a huge immediate contraction. Things just generally got lousy - unemployment rose somewhat, jobs stagnated, no one had a lot of money. The good times never, ever, came back ever again. It was like being caught in a low grade recession, all the time.

That's what this bill will do in the most likely scenario. The US will go into recession, every once in a while it will seem to pop out, then it will drop again. Because the US has population growth, and Japan doesn't, the actual numbers will look better than Japan's, but the feeling of "there are no jobs anywhere" and "this economy sucks" will be pervasive. This will translate into a grinding down of Americans standards of living.

The reason this happens is that all the money that could be used to increase output and productivity or to decrease input problems (by, say, reducing the amount of oil and other commodities used) will be all be being used to prop up the current financial structure. 750 billion dollars, and this is key, is not going to be enough. Folks on Wall Street are already saying so. More money is going to keep flying into the structure to keep it from deleveraging in an uncontrolled fashion, and thus wiping out lots of rich people. I figure they'll be back for more money in 6 months, 9 max. 3 months wouldn't surprise me, since Paulson has a lot of incentive to use up his full allowance while he's still Secretary. After he does so the problem will still exist and the next Treasury Secretary will be back looking for more.

Now, if that money hits the real economy in a significant way, it will lead to inflation, and in my earlier writing that's what I figured would happen. But on consideration, I think the downturn in the economy combined with the sheer sucking power of the leveraged financial structure which has to be kept from collapsing means that very little of that money is, in fact, going to get to the real economy and what does won't be sufficient to overcome demand contraction. Simply put, the financial masters of the universe owe more money than exists in the entire universe. So their need is going to be pretty close to endless. 10 years minimum, probably 20. Maybe 30. Who knows... but certainly not a one time injection. If 700 billion was their total losses, they wouldn't actually need a bail out.

Note that Japanification was always the plan of the "neconomy", or Busheconomy if you prefer. It was always the endgame? Why? Because Japanification makes the winners of the final game permanent. All extra money in the system will be pumped to the people who made the bad decisions that crashed the prior economy, they will stay in power and because there isn't a dynamic economy left, no one is likely to rise to replace them.

There's more...

I hate that the plan lacks bankruptcy revisions.

If you are bankrupt, you will likely lose your home.

Get screwed over because you lose your job, a big chance in the economy we're about to have, lost your home.

Uncontrolled medical expenses and have to go bankrupt? Lose your home.

Or go underwater on your home mortgage because of the sub-prime crisis... LOSE YOUR HOME.

This plan bails out the same assholes who created the problem, but does NOTHING to protect you. YOU get to pay the bill. So do your children and grandchildren.

OPEN THREAD on the bailout.

There's more...

Call Your Senator/Congress Person Today

Tell Congress to WAIT to pass ANYTHING.

• Not $700 Billion anything.
• Start slow -- $150 Billion... $50 Billion a month * 3 months.
• 30% haircut, but really it needs to be based on the neighborhoods.
• The government OWNS the process, not the crooks who screwed us already.
• No more payouts to CEOs. No way, no how, never again.

Ian Welsh has the plan. READ IT ALL.

Firedoglake

Why the Dodd Bill Won’t Bail the Economy Out And How To Make It Do So

Why? Well, first of all it's paying too much for mortgages. 15% off current prices is less than most properties are going to drop. I know folks don't want to hear that, but a return to trend is more than that. 30% would be a reasonable number, but the proper way to do it is to figure out what housing prices in an area would have been without a bubble and pay slightly less than that, though that's slightly punitive. But then, why not be slightly punitive? No reason why the government shouldn't make a bit of a profit on bailing out banks. They already booked their profits and gave them to their executives, after all.

To work, a bill has to establish a reasonable floor for house prices. If it doesn't 700 billion won't be enough, there are trillions of dollars of securities based on mortgages out there, and as prices continue to decline, they will go under and have to be bought. Either the government blinks and refuses to borrow and spend trillions to do it, in which case all the 700 billion did is buy a bit of time and bail some CEOs out, or it goes all in and winds up borrowing trillions. Not only does this money go straight to oil inflation and probably general inflation, and crash the dollar, but if it succeeds in holding housing prices higher than they really should be it leaves the US with a cost structure that is too high, and thus not competitive. Ie., expect offshoring to resume, and get ready for that vacuum cleaner to suck your job overseas.

On top of that since every dollar of spare money is being used for nothing but holding up housing prices, there will be no money for business borrowing by real businesses (those that make things), which means there will be no job recovery and no real export recovery. There will also be less and less credit for consumer spending, which will reduce demand (though, what the hell, you won't have any money anyway.)

There's more...

Read it ALL please. Ian is always worth reading.

Now that it looks as if we're not going to rush to a vote any second, start printing Ian's articles and MAIL THEM to your Senator and Congress Person. Even consider hand-delivering them to their office if you can. FedEx them. Get them there marked "PERSONAL".

If you have any in, now is the time to use it. This is simple stuff. Don't let the Rich Kewl Kids make one last grab for the money. That is precisely what those fuckers are trying to do; screw us with our pants on, taking money from the Middle Class (the working class and poor don't have enough money to make it worth it) -- our homes and what's left of our 401K's) -- and hand it directly to the Owning Class. Pack it in place with laws, and ka-WHAMO, it's done. Bush retires and the Owning Class has Fucked everyone else for the next 30 years.

We would need a full-scale revolt, another Boston Tea Party to fix things if this gets by. Which can be done, but oh wow, costly. Better to get it right the first time, as Roosevelt did over Hoover.

As Sara Robinson keeps pointing out... as futurists and historians ALL keep pointing out... as Minstrel Boy keeps pointing out... Roughly once every human life cycle -- that's a saeculum, or "a natural century", approximately one hundred years -- the conservatives get full control of our money. THIS is what happens.

The Great Depression is still within memory for many of us through our parents and grand-parents. The Civil War is even within memory through the stories our grand-parents and great-grand parents told our parents which they passed down to us orally and in family histories and books which meant something personally. If we remember and pay attention, we KNOW what happens when we let the conservatives, the "Republicans", whatever name they are calling themselves this fracking time around, we know what happens when the OWNING CLASS gets their hands on Middle-Class money.

The steal it. They flat out steal it, because they believe they are the SONS (never daughters) of KINGS, with the right to rule. Our place, they believe, is to do what we are told and to serve them. They own everything by right of Kingship, therefore anything they do is always okay.

Truly they believe this.

They believed this before the Civil War.

They believed this before the Great Depression and World War II, when Prescott Bush was selling pig iron to the Nazis.

They believe it now when George W. Bush is selling American jobs to India and Mexico, and American dollars to China and Japan, while giving our real estate and 401Ks to the Owning Class in exchange for what? For requiring us... as we approach Middle Age and Elderhood, the Middle Class and our children and grand-children in exchange for losing all our assets, have the privilege of working our asses off for the next 30 years to pay the bill and interest to Bush's children and grand-children.

Because Bush is the Grandson of Prescott Bush, he is Owning Class and we're not, and this is How the World Works. Money trickles UP; Work trickles DOWN. Don't like it? There's always the Army. Trust me, we're going to be using it a lot.

We should be happy we're being allowed to even work to pay off what we owe. We only get that much because we're white, i.e.: human.

The colored are being kicked out of the country or tortured. 'Cause as the former First Lady says, the only good brown person is in the fields. And don't even get her going about the blacks (that isn't the word she used.) Unless we're talking Golf. Or shoe shines. Or maybe music. What with that natural rhythm.

Anyway.

Call your Senator/Congressman today. Before George W. Bush asks James Dobson to have God destroy another great American City because of the ho-mo-sex-uals. Hey, be glad it's Dobson he's asking, not the Bin Laden family.

(NO, I'm not a fracking 911 conspiracy theorist; I'm just having fun. Jeezze. Zero possible way it could be kept a secret. No way, no how.)

Unless of course, you want to work for the Bush family for 30 years. Assuming you are white. If you're a person of color, feel free to ignore everything I said. Because your ass is gone anyway. Unless Congress stops this bill.

Call your Senators.
Call Congress (general number.)
Call your Congress person.

Here's Roll Call (with look-up for Senate/Congress.)

Rock and Roll. Don't let this go down as set up.
Just do not.

There's more...

SIMPLE ANSWERS: Why is the Economy Bailout Needed?

Jesse's Mom (Promoted from Comments)

There's serious shit going on out there that needs addressing. This bailout needs to be tough and punitive for the "big boys." They had a grand time fleecing us all, they must pay. And Paulson (to whom Bush wants to give a blank check) surely should have seen it coming.

Hemingway reportedly said when asked how his bankruptcy happened, "Well, gradually, and then suddenly."

Do not forget: One week ago today, on October 15, McCain told us the economy was "sound." Sure, now....

PS. I was a bankruptcy lawyer for 25 years. This isn't so darn complicated as our leaders would have us believe.

My mother, a noted bankruptcy lawyer said, "This isn't so darn complicated as our leaders would have us believe."

She's got that right.

• Knock the top 15-30% off home mortgages.
• Give Bankruptcy Judges power to handle mortgages
• Don't give CEOs a break or a way out. If they run, jail them.
• The Government buys the distressed notes/lands, sets fair prices, and either
• lets current principle owners stay in their homes, or sells secondary homes. Either way, a market price gets set, and not by the crooks who fleeced everyone already.

We did this once already, during the S&L bailout. This is a larger, deeper round.

To the people who ask, WHY must this be done.

It must be done because CHINA & JAPAN (and Germany and Europe) hold our paper. If we do not act, they will stop loaning us $2 billion, that's BILLION dollars with a "B" per day, and the United States will -- because of who our Federal Reserve Chairman is -- try and print enough bad money, to try and make up the difference.

That is called hyper-inflation. As if you had a pocket of $100 bills, and it couldn't buy a loaf of bread. And by this afternoon, literally, a pocket of $1,000 bills couldn't buy a loaf of bread. ANY cash, paper money, anyone gets their hands on, they RUN, actually physically RUN to the nearest store, to spend it on something, anything, right now, because an hour later, it will be worth 25-50% less.

There is at least one country in the world right this very moment -- can't remember the name -- in the grip of a hyper-inflation.

Should China or Japan -- but it's really China -- stop loaning us money, we will simply be fucked without lube. The Great Depression will look like six year olds playing tea. When Russia when through a full devaluation of the Ruble, it took them (I believe) close to ten years before they started to return towards normal.

Just as one example as how bad life got in Russia, their were sex tours set up to Russia from all over the world (including from the United States) for whatever your kink is. Underage was nothing. The one I remember is Professor sex. People flew in to Moscow on special tours in order to have sex with Ph.D's. These educated women, these women with doctorates in their late 20s, provided for their entire extended families and turning tricks with C students who got off on doing it to Professors. Because $50 USD was worth more than $10,000 rubles. (And if I'm off a bit in my precise numbers, I'm making a point, not trying to be precise. What I'm saying, happened in Russia. It has happened in many other places when the money has gone ka-Zam. It could happen here also. As it did in the South after the Civil War.)

Do I think it will get that bad? Am I encouraging panic?

No. And no. Although as we've said at GNB many times, you bet your ass I believe everyone should store six months to a year of food -- and yes, this is a class thing; poor and working class can not afford this I regret to say -- and medicines, several water purifiers, and about 100-200 other critical items (eyeglasses.) Plus a jump kit for each family member. Plus a jump kit in your car for each family member and spares, you betcha.

Do I think worst case (or almost worst case; other cases are even uglier) is likely? No. I do not. Really I don't. Do I think it is a possibility? Yes.

I don't think it will happen. China would have to, in the vernacular, piss on its own boot.

China's central bank -- every central bank in the world -- owns LOTS of dollars. The reserve clearing currency of the world is the United States dollar. Said differently, it is the Dollar in which all international debts, loans, and transactions, ESPECIALLY OIL TRANSACTIONS, are cleared. And everyone needs energy.

Every central bank in the world owns BILLIONS of dollars, good old U.S. of A. greenbacks, specifically in order to clear loans with other central banks, and even more importantly, in order to clear its OIL AND NATURAL GAS accounts, which with very rare and not important exceptions, are denominated exclusively in the U.S. Dollar.

Therefore... if ANYONE, including China, which owns a massive amount of dollars, were to make a move on the dollar, they'd be pissing on their own boot. Said differently, if China were to fuck over the United States, which it could, simply be refusing to loan us more money. If it did, it would be hurting its OWN dollars at the same time it hurt the U.S. dollars.

However, if China did make a move on the U.S. dollar supply, all of a sudden the U.S. would need lots and lots of money, real.damn.quick. But because we suddenly needed money, and no one is lending it to us easily, the interest rate we'd have to pay to get it would go through the roof. (When a thing is scare, it costs more. Economics 101.) And as the interest rate the US Government pays on money it borrows is, by definition, the LOWEST interest rate around, then every other interest rate in the US would skyrocket. (Every interest rate in the world is tied to the Fed Discount Rate.)

Skyrocketing interest rates... businesses can't borrow money. They can't buy stuff they need. No operating capital. Layoffs happen. People are out of work. Depression.

Why wouldn't China do this? Looks like a great way to take out the U.S., a serious rivel for control of the world's remaining energy supplies, and the only remaining super-power. If they take us out, China takes over the world.

Why not?

Because China hold TRILLIONS of dollars in their central bank. They keep lending us money. We loan then dollars, at the rate of $2 billion a day. If China makes a move on the dollar, China would be in effect, destroying all of the money they've loaned us, that is, their own economy -- and the rest of the worlds -- right along with ours. Furthermore, China needs not only their own economy, but that of the rest of the world in order to export goods.

Under what circumstances WOULD China stops loaning us money? How could it get SO bad China would wreck everything, bring the whole world down?

• If we become unreliable, not paying back what we owe, skimming off the money for the benefit of the rich defaulting on the rest. Oops.
• If we become a genuine military threat. Then they just fuck our economy and take the hit. Their rural economy can handle the hit better than our technological/oil economy. Plus too bad if 100-200 million starve there. Here... not so good.
• If we threaten to destroy the market to the point it is too dangerous for them to have their money in dollars.

Hmmmmm.

And I notice I haven't even talked about the dangers of China's own 9-10% inflation. Which it can NOT sustain. Which may result, er, is likely to result, er, WILL result in its stopping loaning the United States billions of dollars daily, sometime in the next one to five years, with all of the above consequences. Hopefully not all at once. A slow landing, not a sudden crash. But China will have at least a recession, if not a depression, lasting five to fifteen years as it completes its transition from a rural to an industrial (and perhaps even a technological society.) If China does have a depression, so will the United States and the world.

Be that as it may...

This is why the U.S. MUST make the market safe now.

China and Japan have sent clear and unmistakable signals that we WILL fix this problem. Now. They are not stupid. No one commits global suicide. Yet at some point, retrenchment inside the Middle Kingdom must look better than allowing the foolish Americans to continue burning through the wealth of the world.

Therefore, we return to what I have said before.

• Call your Senators. Tell them to HOLD THE LINE.
• Or work as slaves literally the rest of your lives.
• Your children and grandchildren as well.

Yep... there are other ways this could be done.
Make the amount MUCH less for now. Revisit it after the election.
The point is simply to reassure the Street help is coming. All the help does not have to arrive now. The Street simply needs to know it will get there.

Anything short of Holding the Line is too much. The REPUBLICANS blew this. They don't get a voice.

Make the call.

There's more...

Please Respond Immediately Forthwith In Confidence

Dear American:

I cordially correspond today to request you to support an urgent secret business relationship with a transfer of funds of great magnitude which is most seriously important.



I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused urgent need for large transfer of funds of 800 billion USD. If you would assist me in this transfer, it would be most profitable to you.



I am working with Mr. Phil Gramm, lobbyist for UBS, who (God willing) will be my replacement as Ministry of the Treasury in January. As a former U.S. congressional leader and the architect of the PALIN / McCain Financial Doctrine, you may know him as the leader of the American banking deregulation movement in the 1990s. As such, you can be assured that this transaction is 100% safe.



This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred. For this inconvenience you will be rewarded with grand fees of 1/1,000,000th of 1% of possible profits due to off shore laundering of skim funds due to reprinting of said funds.



Please reply with mother's maiden name, routing and account numbers of all of your bank account, IRA, 401K, pension funds, gold and silver accounts, serial numbers of any weapons you own, and college fund accounts and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.



Please Respond Immediately Forthwith In Confidence.



Yours Faithfully and Sincerely,

Minister of Treasury Paulson

h/t Melina and Richard.



Now, let's get real.


Here's Ian Welsh.

Firedoglake

Chris Dodd Stares Down Paulson

So there was "Goldman" Hank, holding a gun on the economy and staring Congress down. "Give me the 700 billion, or the economy gets it!" he threatened. For two days it looked like he was going to get away with it, 700 billion dollars to spend on the Wall Street gang, the boys who'd already shot the economy up so bad it was in danger of bleeding to death.

Then Marshal Dodd came swinging through doors, shotgun in hand, and said "not so fast Hank. Put the gun down, and back away from the economy. We're going to do this my way."

For a moment calm reigned, then from off one side came a high pitched squeak, "you just put down that gun Dodd," said Bush as he leveled his blunderbuss "the Veto" at Dodd, "and you let my good friend Hank walk away with the money or I'll use this gun." He swivelled and instead of aiming it at Dodd, put its muzzle right against the economy's head. "I'll do it. Don't think I won't! I've killed an economy before!"

Hand still on the trigger, Dodd glanced over at Reid. The old man's fighting days, some said, were long gone. Dodd hoped Reid had one big fight left in him. If he didn't, the economy was done, and Paulson would get away, scot-free.

So yeah, the Dodd plan. Good plan. Buying up mortgages for 15% less than the current market value of the house, then reissuing a clean mortgage to homeowners helps the banks while still giving them a slight haircut (but only slight, odds are home prices will drop more than 15% before the slide is over.) It helps homeowners stay in their houses. It sets a market price so that banks know what mortgages are worth and thus what the derivatives based on houses are worth. And giving the mortgages bought to the FDIC, one of the few agencies that Bush didn't cripple, is genius.

Giving the government stock equal to the value of any bailout for the company is also only fair. If they get bailed out, taxpayers should have a chance to get their money back. If they don't like that, well, beggars, and they are beggars, shouldn't be choosers.

There's more...

If that wasn't enough, Ian kicks it again.

Firedoglake

What the Dodd Bill Needs To Be Complete

As much as I think the Dodd bill is a significant improvement over the Paulson power grab, and I do, it is missing a number of important things.

First, as Kay Hagan points out, the review portion seems to be missing teeth. If the review board doesn't like what the Secretary is doing, what can it do about it? Also, she's right that it needs to meet once a week, not once a month. This crisis is moving too fast for once a month.

Second, there doesn't seem to be any provision for paying for this beyond praying it'll eventually pay for itself. I don't see any good reason not to add in Bernie Sanders suggestion of a 10% surcharge tax on the Americans who earn over a million a year. They're the ones who benefited from the last 8 years, who benefited from the policies which caused this disaster, they're the ones who should pay to clean up the mess.

Next, the bill (Section 10) allows for insurance of money market funds but doesn't appear to require that if they fail anyway, they be taken over by the FDIC. This needs to be a bedrock principle, if you blow up your business, the government gets it, you don't get to keep it when in a free market you'd be bankrupt.

I also don't see any real re-regulation of the industry in this bill. That needs to occur, and it needs to be in the bill, because once Wall Street has their bailout they will fight against being properly regulated tooth and nail. This needs to include very strict rules not allowing the use of default insurance any more, getting rid of most different types of swaps, regulations limiting the use of securitization and limits on how debt in general can be sold. (In particular, debt should probably not be able to be sold more than once, and originators should be forced to keep at least half on their books to avoid them selling stuff they know is crap.)

Dodd needs to add an organization which has the right to regulate banks. This needs to be in badly.

There's more...

Call your Senator. They flat out ignore emails and there isn't time to write. CALL. Call today.

Look, I know we ask you sometimes to write or call about this or that. THIS IS THE NEXT 20 YEARS OF YOUR LIFE, FOLKS.

FUCK the Presidential elections. Fuck the Supreme Court.
DIS DA REVOLUTION, MAN.

Right fracking now.

Thirty, forty years, some of us have waited. Here it is. Today. RIGHT NOW.
We screw this up, we are slave fucking labor working for the MAN.
I mean the words I'm using.

Get on the phone.
Call your friends.
Call your family.
Call everyone you know.

Tell them to tell their Senators and Congressman...

HOLD THE LINE. Do not give an inch to the Republicans.
No one fucking inch.

• Support Dodd's plan.
  
• They broke it. They lose control of what happens now.
• No unelected official in charge.
  
• The government owns what it pays for.
• Middle-class people get their mortgages relieved also.
• Bankruptcy Judges can grant mortgage relief.
  
• People over $1 million can pay a 10% surcharge -- they've been making millions on our labor, fair is fair.
• Congress has oversight ongoingly. End of discussion.
• Screw up, go to jail. This is not "get out of jail free" boys. It's save the country, not you.
  
• And no fucking golden parachutes for CEOs, no way, no how.
• Make them pay.

HOLD THE LINE...
Or your grandchildren will still be paying these Republican crooks.
Pick up the phone -- make the call.

There's more...

McCain: Less Jobs, More Wars

Yes -- He Really is that STUPID. You're Not Imagining It.

Palin just threatened war with Russia in her ABC interview. Seriously.

No, it wasn't a gaffe. Totally consistent with McCain's point of view. Check the interview: (Video at the jump.)

ABC

The governor advocated for the admittance of Georgia and Ukraine into NATO.

When Gibson said if under the NATO treaty, the United States would have to go to war if Russia again invaded Georgia, Palin responded: "Perhaps so. I mean, that is the agreement when you are a NATO ally, is if another country is attacked, you're going to be expected to be called upon and help.

"And we've got to keep an eye on Russia. For Russia to have exerted such pressure in terms of invading a smaller democratic country, unprovoked, is unacceptable," she told Gibson.

Palin, who obtained her first passport last year and who has served just two years as Alaska's governor, told Gibson that she was up to the challenge of being Sen. John McCain's vice president.

In ice-skating, this move is called the "death-spiral."

McCain/Palin: LESS JOBS, MORE WARS.

There's more...

Blues In The Morning

Furry Lewis photo downloaded from Google

How Long Blues

I sometimes get the blues, sometimes I get honest to God clinical depression. There are a couple of things I do to check myself to see what's working on me.

First I assess what's going on. If there are things that worry, or make me sad going on, it's probably just that I'm being honest about my life and my situation. Sad isn't depression.

Second, I pick up a guitar and play some old, old blues. If I feel better, it's not depression, it's sadness. Blues helps.

From the great Furry Lewis.

How Long Blues

How long, Baby, how long,
Has that evening train been gone?

It been gone since that bloodred sun went down.

Thought I heard a whistle
Think I see a train
Train done took my baby
Left me here again
How long, how long, baby, how long?

Standing at the station
Looking down the track
Wonderin' 'bout that woman
Is she ever comin' back?
How long, how long, baby, how long?

How long?
How long?
Has it been since she been gone?
She been gone since that bloodred sun went down.

Looking for my baby, look as far as I can see
I ain't got no woman and Lord
These blues got me
How long, well, how long, baby how long?

How long?
How long?
Has that evening train been gone?

It been gone since that bloodred sun went down.

How long until election day?
How long will we be paying for the last seven years?

Will anything that happens in November make a difference?

I better get the bottleneck out.
This might take some time.

There's more...

The Great Depression (v2.0) Starts Now

Brown Bear. photo San Diego Zoo. Click for LARGE.

Neo-Cons Cause Current Exploding Depression

Let me start, by saying clearly that I am speaking for myself. This is my assessment. You should make your own assessment and act as you see fit. I am not a lawyer, stockbroker, or financial adviser. What actions you take, are your own, including any tax consequences. I am not responsible for what you do in any way.


The next year will continue the U.S. slide into the worst depression since the Great Depression of 1929.

The Neo-Cons caused this.

Bush, Cheney, Karl Rove's political boys, Rumsfeld's war in Iraq, and the Administration's failure to adequately regulate the markets let Wall Street run wild, bubbles inflate, and the greatest wealth transfer in history happen. Money flew from people like you and I into the pockets of the richest 1% in the world.

Now the real-estate bubble, built on lies (the homes and land were never worth what they were said to be worth; had the Bush/Cheney regulators done the job they are sworn to do, this could not have happened) is collapsing, indeed, imploding and the financial markets world-wide are imploding with the collapsing real-estate bubble.

At the bottom of the real-estate markets are the stock-markets. After the stock-markets are the banks. After the banks is the United States Government and the Federal Reserve Bank, determined not to let the banks fail, determined to not let the stock-markets fail. If for no other reason than to --literally -- prevent armed revolution in the streets and neo-cons hanging from lamp-posts, which would no doubt happen were the banks and the stock-markets to fail. Even Bush/Cheney, living in bubbles, know that.

Which is why Chairman Ben Bernanke has stepped in and saved Bear Stearns. That is, allowed someone else to purchase its assets at a fire sale, while guarantying its liabilities through the government.

What matters to us is that the Great Depression I have been speaking of in these pages since the start of Group News Blog, has arrived.

The Agonist

by Numerian

Bear Stearns collapsed because it was as highly leveraged as any hedge fund – roughly $30 in assets for every $1 of capital. It only takes a 5% loss on the assets to wipe out all of the capital of the firm. Bear Stearns succumbed because its assets were especially prone to losses since they consisted of mortgage related securities. But losses are now occurring on much safer assets, and since all Wall Street firms have leverage to the degree Bear Stearns did, all of them are exposed to failure.

There are hundreds of companies in the same position. In the past 15 years the credit worthiness of corporate America has deteriorated to the point that 70% of all corporate bonds are now junk debt, meaning these companies have excessive amounts of debt. Less than 10 companies in the U.S. carry a Aaa rating. As those companies with excessive debt are unable to roll over or replace their debt, and as the economy slows, they are going to have a hard time surviving.

This problem is already going global, hitting the U.K., Australia, and other countries that experienced housing booms. Ultimately the credit implosion will fell China and India, two countries that have built their economic engines on highly shaky debt pyramids. Already the stock market in China has begun a collapse that looks remarkably similar to the fall of the NASDAQ in 2000.

Deleveraging is a term economists are using for this process of shedding assets to avoid more serious market losses eroding one’s capital. As hedge funds, banks, corporations, and individuals increasingly rush to deleverage, the losses are exacerbated, and many just won’t make it. This is how systemic risk is bred and how it destroys credit creation. Without credit, a modern economy starves.

Ben Bernanke certainly knows this and has put Bear Stearns on life support in order to stop the contagion from spreading. Bear Stearns – which isn’t even a commercial bank and is not under the Fed’s jurisdiction – is too big to fail in the view of the Fed. It has too many relationships with all the rest of the market to be allowed to go into receivership.

But is this a losing battle? History certainly suggests that systemic crises have a way of rumbling on until all the excess debt is wrung from the system, resulting in enormous economic pain. One of the characteristics of a systemic crisis is the loss of confidence in the financial system, and we saw this on display in the Bear Stearns collapse. Early in the week executives at the bank were saying their liquidity situation was sound despite all the market rumors. Suddenly on Friday it was announced by these same executives that their liquidity situation had deteriorated markedly “within the past 24 hours.”

Perhaps this is true – executives face severe personal penalties for lying publicly about their company’s situation. But the market was understandably skeptical, which means that the next bank which says publicly it is highly liquid will have to overcome widespread suspicion and doubt. Already rumors are cropping up about other Wall Street firms and large global commercial banks. This is the real battle Bernanke is facing – the confidence battle. All banks exist only to the extent the public is confident the banks can meet their obligations – this is the Achilles heel of leverage. Once confidence is lost, many banks can fail not because their balance sheets are riddled with bad loans, but because of a bank run.

Bear Stearns failed because it hadn’t the resources to survive a bank run. The odds are reasonably high that it will be joined by other Wall Street banks, whatever Ben Bernanke does. He can keep these firms on life support to protect the market, but in doing so he is transferring the risk and the losses to the federal government, thereby nationalizing these banks. It is not difficult to imagine that when all the excess leverage and all the bad debts are eliminated from the system, the federal government will own most of the Wall Street banks, many large commercial banks, and also Fannie Mae and Freddie Mac. As this becomes evident to the markets, the dollar will not survive on the international exchanges, and U.S. Treasury rates for long term debt such as bonds will rise sharply. The U.S. will almost certainly lose its Aaa rating for its debt.

Which brings us back to the question of a Depression. As the banking system is nationalized, and credit dries up, growth in the economy will cease. Already the U.S. is in a recession, but the decline in GDP is about to accelerate significantly to Depression levels of 10% or higher. Unemployment will soar. The true unemployment rate in the economy, counting all the workers who want jobs but are currently being left out of the statistics because they haven’t sought work for awhile, is probably around 8% to 9%. This rate will easily double. The asset deflation that is now ravaging home values will spread not only to other physical assets, but to services and commodities. Nothing will be safe from the pressure to reduce prices and costs. As this process unfolds, the stock market will finally come to terms with the economic reality, and a stock market crash will ensue. This Depression could last somewhat over a year, or be much more prolonged if the Fed keeps too many firms on life support. The Japanese did that in the 1990s during their bout with deflation, and it took at least ten years before the economy started to grow again.

There's more...

The Bonddad Blog

Bear Stearns had a stock-market value of about $3.5 billion as of Friday -- and was worth $20 billion in January 2007. But the crisis of confidence that swept the firm and fueled a customer exodus in recent days left Bear Stearns with a horrible choice: sell the firm -- at any price -- to a big bank willing to assume its trading obligations or file for bankruptcy.

"At the end of the day, what Bear Stearns was looking at was either taking $2 a share or going bust," said one person involved in the negotiations. "Those were the only options."

I was listening to Bloomberg this morning and someone commented that Bernanke is a student of the great depression and that knowledge was serving him well. I agree with that sentiment. I have made a great deal of fun at Bernanke's expense over the past few months. Frankly, I feel a great deal of empathy for him because he is between a rock and hard place.

However, I understand his reasoning for taking these moves. Simply put, Bernanke is trying to prevent a financial sector meltdown.

The central problem the Fed faces right now is their tools are not designed for the problems we face. What we have right now is a collateral and counter-party crisis. That means two things.

1.) The collateral crisis means that collateral on bank's balance sheets isn't performing as well as advertised. Basically, any bond backed by mortgages is in trouble because homeowners aren't paying their mortgages. That means banks who hold mortgages aren't getting the payments they should be getting. As a result, banks balance sheets -- which serve as the basis for their ability to extend credit -- are in serious trouble. That means...

2.) Anyone who might take out a loan might not pay it back. This is called counter-party risk. It simply means that everyone is at risk of defaulting on a loan right now. That means loans aren't getting made. In an economy like the US economy where credit is a prerequisite to everything, that is the kiss of death.

The Fed can provide plenty of money. Over the last 9 months they have flooded the market with cash. But that does not good if people aren't willing to use it. And right now, no one wants to loan anybody any money. That's the central problem -- and so long as that exists there will be a mis-match between the Fed's policy tools and the market's problems.

The Agonist

by Stirling Newberry

The Neo-Conservative Plutocracy

For years economists in the US thought that US policy makers had learned from Japan and we would not repeat the results of their "Bright Depression." However, this view was excessively optimistic, and rooted in a time when there was a bipartisan liberal consensus in Washington that the good of the public came first. When the right wing came to believe that it could have a military machine without mass mobilization, but instead with a high tech smaller force, it also did not see the need to keep most Americans happy. Instead, their new vision was of a small, permanent and highly mobilized base, which included a core of military-industrial contracting, supported by a security apparatus and getting votes from a combination of resource extraction, disorganized labor, the wealthy, franchise owners, and theocrats. Their idea was expressed in the Project for A New American Century, and in Karl Rove's political apparatus. People who were a danger to this thesis were removed by whatever means necessary. While being a heavily socialist enterprise, in the right wing sense of being a national socialism, it relied on a propaganda of libertarianism. This propaganda relied on creating the meme of the late 19th century as the legendary golden age, where laissez-faire economics combined with piety, plutocracy, and military empire, in that times case the conquest of the West to create a rising America. In truth America during the late 19th century was far from its peak, and much of the gleaming apparatus of capitalism came much later. People were made to, by means of framing, impose the gleaming rise of the City skyline, with a time when there was no building taller than 12 stories in the US other than a few church spires and the Brooklyn Bridge.

This neo-conservative plutocracy was intended to take the place of the Liberal Democracy. It had a war without end as its mandate, a Christianist ethnocentrism as its meaning to create context, and a monetary system which would, after the invasion of the Middle East, be based on a direct imperial control over oil. The oil would be sent back to the US, indirectly in the sense that it would be sold to other nations, thus freeing up supplies closer to the US for our consumption, along with the enormous free cash flow that the oil business creates. Iraq was to be annex of Texas.

The Adventures of Captain Carnage

In 2001, as soon as he was made the economic advisor to Bush, I stated repeatedly that Ben Bernanke would be made the Federal Reserve Chairman after Greenspan, and that he would be a disaster. This was based on a reading of his academic work, which was, essentially, a series of attempts to prove that such a neo-conservative system could avoid the collapse that lead to the Great Depression. No Great Depression, no FDR. No FDR, no situation where the rich would have to accept regulation and restriction in return for bailing out. In essence the first problem is the "Great Contraction." The United States and other nations, to attempt to re-impose the Gold Standard after allowing it to lapse for the First World War, had to at a certain point accept prices at the new levels, or had to dramatically reduce the money supply. They chose the later, creating a massive contraction of the money supply. This was done in the face of a downturn, because it was feared that a downturn would lead to easy money, and this to hyper-inflation of the kind witnessed in Germany, or very high inflation, as seen after the First World War. For them, coming after a two generation period where deflation was the norm during the classical gold standard and the consolidation of the first Conservative Era, globally, inflation was a horror.

Bernanke and others, argued that the Great Depression was not in any way a structural event, but strictly a macroeconomic monetary event. That strictly macroëconomic policy measures could have been used to effect the bailout. There were two major intellectual problems. One of them is the point where monetary policy is "pushing on a string." Or what Bernanke called "the zero point". The "bold" steps turn out to be the same sort of maneuvers used in the first decade of this century: finding deep pockets and hiding the losses.

Bernanke's failures begin as economic advisor to the President and continue in his time on the Federal Reserve. The culminate with his failure to either deal with the liquidity crisis, or to face inflation head on. By allowing the housing bubble, and the financial bubble built on it, to explode he set up the very circumstances. By dragging his feet on raising interest rates, and then by ignoring the expanding monetary crisis, Bernanke has set the stage where neither he, nor anyone else, is in a position to act. With a President who is content to give imaginary orders to imaginary armies, there is no center of power that can move. It also indicates that the opposition party has made a series of gross miscalculations about the situation, believing the rhetoric that things were going well, and that they were getting the best deal they could. They were facing people who were bluffing all the way, and are now realizing that there is no rush to give way on anything.

The "slow" rate raising campaign was a double disaster, it neither headed off inflation nor did it keep credit easy enough. This is because the problem was not the level of interest rates, per se, but what we were spending the money on. As many, many, many commentators, many, many times have pointed out, the US was consuming too much, and exporting too little. The Neo-Conservative happy monsters said that this could go on for ever, giving other people our paper for their oil and goods.

While it is possible that we will emerge from this functional, the likelihood is that we are going to see a continued fall for the next 9 months, as the crisis deepens, a die hard illegitimate executive burns his last brands on our skin, and a feckless opposition folds its cards over and over and over again, allowing ordinary people to bear the brunt of the continued contraction.

We are riding this bucket down a ways farther, because there is nothing to right the equilibrium, and without the stimulus from war spending, on which we are so dependent, there will be no pick up in business activity soon. There will be some increased exports, but not sufficient to take the place of the cratering of housing.

What needs to be done? Regregulation is obvious. Making the Fed serve elected policy makers is a no brainer. Restating numbers to prevent the white washing of bubbles is essential, a public sense of ownership of the financial system as part of the "high ground of the economy" seems essential. Firing Ben Bernanke is a pink do this to day post it note.

But most essentially there needs to be a change in the basis of money, simply because the obvious stability of real estate assets in the United States will no longer be enough.

There's more...

We've told you before, the feces are hitting the oscillating rotator. Stock up on food, water (a good water filter with extra filters), medicines, fuel, essential clothing. At least a six-month supply of everything, and a year's supply would be smart.

If your home is underwater, sell now. A year from now will be too late. Slash your debt to the bone.

I expect in one year, including everyone who has given up looking for work, one in six to one in five Americans will be out of work.

If you can legitimately and legally leave the U.S. for the next five years, move.

The Great Depression of our life, is here.

There's more...

Stocks Continue Fall; Bonds Rise.

Dow Down 200 Points At Opening
Broader Market Also Declined

Yesterday's Fed rate cute cut of 3/4 points held off the bears for one day, and then the selling resumed.

In Europe, the Central Banks refused to join the Fed in cutting rates, and markets continue to fall.

AP News via MyWay

NEW YORK (AP) - Stocks fell in another rocky opening Wednesday, with investors uneasy about the health of the economy and corporate earnings after disappointing reports from big names like Apple Inc. (AAPL) and Motorola Inc. (MOT) In the first minutes of trading, the Dow Jones industrial average fell 261.10, or 2.18 percent, to 11,710.09.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 28.97, or 2.21 percent, to 1,281.53, and the Nasdaq composite index slid 53.19, or 2.32 percent, to 2,239.08.

Bond prices rose sharply as investors sought the safety of government-backed debt.

Wall Street also fell in tandem with markets in Europe, which pulled back after European Central Bank President Jean-Claude Trichet indicated that the ECB would not follow the Federal Reserve's lead and cut interest rates, according to Dow Jones Newswires. The Fed's decision Tuesday to cut its federal funds rate by 0.75 basis points to 3.5 percent eventually helped calm U.S. markets, but it was already clear that investors had doubts about the potency of the Fed action. Rate cuts typically take months to work their way into the economy.

Bond prices rose sharply, the beneficiary of investors' search for safer places for their moeny. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.41 percent late Tuesday. The dollar was mixed against other major currencies.

In afternoon trading in Europe, stocks dropped sharply. Britain's FTSE 100 fell 3.44 percent, Germany's DAX index fell 4.76 percent, and France's CAC-40 fell 4.02 percent.

Reuters

TREASURIES-Bonds rise as stocks fall on recession fears

NEW YORK, Jan 23 (Reuters) - U.S. Treasuries rose on Wednesday, with the benchmark yield briefly touching its lowest since June 2003, as fears of a global slowdown and more write-downs at European banks spurred a flight into bonds from stocks.

Global equity markets resumed their sell-off, adding to the appeal of ultra-safe Treasuries, as the positive jolt from the Federal Reserve's surprisingly bold 75-basis-point rate cut on Tuesday faded. Attention again turned to worries about a U.S. recession and its global repercussions, plus banks' exposure to subprime mortgages, traders said.

"When the Fed cuts 75 basis points, stocks are supposed to go up. That's not happening. There's a lot of dread out there," said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.

The stock market pared its losses because financial shares rose after their initial plunge, in which the Nasdaq .IXIC opened down 2.4 percent into bear market territory.

"Any support stocks show, long-end (yields) will come back off their lows," said Mary Beth Fisher, director of interest rate strategy at UBS Securities in Stamford, Connecticut.

The price on the benchmark 10-year note was up 19/32 at 107-22/32 after an earlier high of 108-1/32. The 10-year yield, which moves inversely with its price, was last at 3.35 percent, down 7 basis points from late Tuesday.

There's more...

I'm fully out of the market, as of the end of trading yesterday.

Everything is liquid, cash, money-market accounts, certificates of deposit. All backed up with the full faith and force of the U.S. Government. Could I get hurt? Yeah. Inflation could hurt. I might move 10-15% to physical gold, but I should have done that two years ago. I knew it then too, when I saw this coming. I just didn't have the cash then to buy gold in any real volume. I still don't, actually.

Here's what I predict. TAKE THIS AT YOUR OWN RISK. I am not a broker or a licensed professional of any kind. It's your money, not mine.

Oh... and if you are going to read one person, read this guy, The Bonddad Blog, who not only has his own blog but publishes at Huffington Post as well. Bonddad isn't saying what I am saying. (I am responsible for my analysis.) But I like his thinking.

I believe China is way over-extended. They have been keeping their economy over-heated and will try to keep it up and looking good through the Olympics. At some point, for sure after the Summer 2008 Olympic games, possibly before, China's economy is going to melt down. When that happens, they won't be positioned to keep loaning the United States $2 billion dollars a day in the bond market.

China will go into their equivalent of the U.S. Great Depression, and take the rest of the world with it, including the U.S. I believe this will happen about mid-2009, roughly 18 months from now. Lots of people will be out of work, everywhere. Could it happen sooner? Sure. Later? Yep. Could I be wrong? You bet.

Do I think I'm wrong? No. And I'm putting my money and actions behind what I'm telling you. But take my analysis at YOUR OWN RISK. I don't back anything I'm telling you up with a damn thing. It's all on you to check this out for yourself, and make up your own mind what to do.

The most important thing will be to have a six-month supply of food and clean water (or better, a good water filter) stocked up. I'm not kidding. Then have gold and silver, which have real value which will hold, even as paper money inflates away. Physical tools of good value. A good bicycle you can get to work on. An adequate supply of medicines. If your home mortgage is underwater, make sure you've sold it before spring a year from now. Hard times are a-coming. Prepare for them. If you're going to ride things out where you're currently living, a wood stove to heat the place wouldn't be a bad idea, and make sure it had enough room on top for you to cook, maybe even including an oven.

Do I know this is going to happen. Of course not. No one knows the future to a certainty. But just as we can be sure that earthquakes will happen along known fault-lines at some point in the future, I look at what the Fed is doing, the over-heated economy in China, the defaulting mortgages all across the land, and even someone as ignorant about money as I am, can say, hard times they are a coming. We've been living in a bubble for a while, and it's going to burst in a big way.

If I'm wrong, well, you'll miss out on some upside appreciation in the market. Oh well. If I'm right, you just saved yourself possibly losing a third or more of your life savings which you have in the market, plus made sure your family has enough to eat, tools to make a living with, and a warm house during the cold months, a year or two from now when it gets tough.

That's what I'm doing. And that's what I'm advising those close to me to do.

Historical note of interest: Three years ago I got pretty crazy for about six weeks. This is back when I wasn't myself due to the pain meds. During that time, I predicted we'd have $100 oil by the end of 2006. Turns out "I" was wrong. It was two days into 2008. I was off by a year and 2 days.

Historical note #2. About two-three years ago, I purchased gold for the first time in my life. It was around $220, 230 bucks an ounce. I took home one ounce, all I could afford. Stuck it in a glass jar. I predicted -- just as I'm predicting now about the future world economy -- that gold was going to go up. Some months later, I was broke one month, so I marched right back down to the same store, and sold it off. Made a $30 dollar profit, even with the spread. Gold now is something like $800+ an ounce. And going up. I think it will top well over $1k, maybe as high as $1.5k if China goes into a full-blown depression as big as what the U.S. had in the 1930s.

Finally, here is this to think about. In the 1930s, the United States had FDR. He led us through the Great Depression, and brought us into the Great Society, and then took us through World War II. At the end of which the United States was the undisputed leader of the world, the USSR not withstanding. We did that with much less than our current 300 million people. We did that with our brains and our technology and our vast natural resources.

China has 1 Billion people. They have brains, they are rapidly gaining technology to knock everyone's socks off, and they have vast, vast natural resources. If they do indeed go through a great depression, look for them to emerge after 10-15 years, as the leader of the world, while the United States sinks back after 10-15 years of being in a serious depression and the U.S. dollar no longer being the reserve currency, as being a respected leader, but no longer the leader. Like Great Britain before World War II.

There's more...