What follows, a few paragraphs below, are
10 new/obfuscated and revised realities about our economy (due to new information over the past five or six weeks since I published the original diary: "
10 Stunning New Truths On Wall St., Economy, Jobless") that are just now surfacing that are sure to make more than a few heads explode. This diary is definitely not for the faint-of-heart, or those that become depressed or outraged when they read upsetting news and negative trends about national and global finance.
Collectively, however, like the first 10 items I discussed at the beginning of October, these 10 new topics tell us a story which is nothing short of being in diametric opposition to much of what we're hearing in the MSM these days. To call this a "recovery," in even the technical sense of the word, is--at best--a stretch, certainly, and at least as it pertains to the voting public, in general. Two weeks ago, here's Nobel Prize-winning economist Joseph Stiglitz on the "recovery," "
Stiglitz Says U.S. Recession `Nowhere Near' End After GDP Jump." In fact (and according to Meredith Whitney, one of the most prominent and highly respected analysts on Wall Street, from CNBC via Calculated Risk, on Monday, "
Stocks Overvalued, Recession Will Return"), we may very well be entering into the second leg of a double-dip recession, with this portion of the roller coaster being even more severe than the first chapter.
As we see unemployment and underemployment going through the proverbial roof--on many levels, as I noted in my October 3rd diary, linked above, joblessness hasn't been this bad since the Great Depression--we're reading the words of many now projecting it to remain unacceptably high for as much as another decade. (Checkout the graphics in this link, immediately to the left. They're pretty compelling.) It appears that the leaders of all things financial in our nation are just trying to hold things together on Main Street with spit and Band-Aids®, while most of our nation's so-called "wealth" (past, present and future) continues to make a beeline to lower Manhattan, both overtly and covertly. In fact, while many of us still have to "argue" that comprehensive regulatory capture of our government is--indeed--the case, even around here; the truth is, it is a done deal. We're talking yesterday's news. That train's left the station.
In case you don't bother to click on the link to my older diary, linked above, here are the Cliff Notes on it:
1.) It's no longer just the "weakest job market since the Great Depression," it's now, officially, "the greatest number of job losses since the Great Depression." Yes, since I published that diary about six weeks ago, even the New York Times is now telling us it's "The Worst Unemployment Since The Great Depression" (11/7/09).
2.) September's employment report, included "benchmark revisions" demonstrating an undercounting of employment by 15% buried beneath the footnotes of the standard, monthly reports.
3.) It's already a brutal Depression for much of the U.S. and those truths are projected to get worse, not better.
4.) "Officially," for the first time in statistical history, standard government unemployment benefits are insufficient.
5.) The "revolving door" and direct information links/leaks between our government and Wall Street (now unquestionably dominated by Goldman Sachs) are, once again, being called into question.
6.) Due to facts outlapping the spin, at least to some extent, the leaders of our country's economy are starting to get more reality-based in their comments, too.
7.) Poverty is dramatically increasing in this country, no matter how you look at it.
8.) Manufacturing--what's left of it--is in really bad shape, and any comments you're hearing regarding a slight improvement in highly-negative, long-term stats, are more often than not being blown out by ongoing reports, despite any spin you might hear to the contrary.
9.) Generally speaking, the real story's getting out.
10.) Speaking of the real story, many are telling us that even the government's U.6 unemployment/underemployment index is underestimating the extent of the problem in the U.S.
WE ARE PWNED!
When North Dakota Democratic Senator Byron Dorgan, certainly one of the more conservative Dems in that chamber of our legislative branch, joins a list of Senators including Dick Durbin and Bernie Sanders, all essentially saying the same thing--that the banks and the corporations own the place, and on the tenth anniversary of of the repeal of the Glass-Steagall Act last week, no less--perhaps we should now accept this as a truth? (See: "Byron Dorgan's Financial Plan: Common Sense From The Senator Who Saw This Coming.")
It's hard to argue with these initial conclusions when, as we did 14 months ago, we observed our legislative branch dishing out almost a trillion dollars to Wall Street in a matter of days, followed by federal backstops, loan guarantees and related programs that still amount to almost $13 trillion (even now, as we "recover"); then, adding insult to mortal injury twelve months later, we witness these same morally bereft souls sitting on their asses playing politics with unemployment extensions, equal to a paltry few billion dollars, that are meant to do little more than provide basic staples of survival to over a million of us.
And, it's hard to argue with these conclusions as we observe these same folks in Washington submitting corporate-crafted legislation for passage in committee as they simultaneoulsy parrot corporate talking points on the floor of the House and Senate, en masse, as true reform, regulatory or otherwise--designed to actually address our economy's illnesses--gasps for air just to see the light of day, while still succumbing to this exact same brand of regulatory capture, as well.
So, read 'em, but don't weep! Get off your asses; pick a travesty--any travesty--and make some noise! Hopium, to use a phrase that (IMHO) the right can shove up their ass from whence it came, no longer cuts it for Democrats, either! At least not if we're going to hold down the fort in 2010! But, make no mistake about it, there IS an answer to the question George Washington's blog posted today: "Can We Save America?" And, the answer is: YES, WE CAN!
(They say that "knowing the problem IS half the solution." So, adding to the ten hidden truths I mentioned on October 3rd, listed above, here are 10 more of them--new and heavily-obfuscated problems that you might not have been hearing (much) about--in terms of new realities that relate to our economy and Main Street, right now.)
# # #
1.) AS FAR AS THE ECONOMICS COMMUNITY'S CONCERNED, CONTRARY TO POPULAR BELIEF, THESE PUNDITS ARE IN A HISTORIC STATE OF MASSIVE DISARRAY/DISAGREEMENT RIGHT NOW. All I can say to them is to paraphrase Lloyd Bridges in the movie, "Airplane," and that's: "You picked a hell of a year to give up sniffing glue."
Yes, you're not misreading anything. The first new reality is that a significant portion of the entire economics profession is going through a crisis of self-confidence right now. (I guess that's what happens when one attempts to act like they know what they're talking about when these three simple words would more than suffice for many of us: "I don't know!")
I mean, seriously, could you even conceive of Larry Summers standing up at a press conference saying those three words to someone in the fourth estate? Pigs will fly before we ever hear those words coming from his lips!
As Paul Krugman noted it a couple of months ago, in what I think might be one of his most important pieces of the year (See: "How Did Economists Get It So Wrong?"), and as it's now being acknowledged by the very folks within our federal government responsible for measuring and reporting upon the state of our nation's economy: much of what we thought we knew about our economy is either statistically inaccurate; just plain wrong; or both.
I also blogged extensively about this matter just a week ago, in: "Breaking: BLS, Fed, BEA, et al "Overstate Strength of Economy."
So, It's not a coincidence--in fact it may be one of the more obvious signs of our uncertain times and of the contradictions that are now running rampant throughout the economics profession--that when you look up the term, "Mainstream Economics," in Wikipedia, you'll find this comment opening up the final section of the page:
Since the financial crisis of 2007-2009, there has been heated conflict within and without economics on the status and future of mainstream economics,[7] and its future course is uncertain.[18]
Some economists, in the vein of ecological economics, believe that the neoclassical "holy trinity" of rationality, greed, and equilibrium, is being replaced by the holy trinity of purposeful behavior, enlightened self-interest, and sustainability, considerably broadening the scope of what is mainstream.[10]
I would take this a step further and say: At the moment, rationality, greed, and financial inequality still very much rule the day. (If you still maintain any doubts about this, please refer to the links regarding Senators Durbin, Dorgan and Sanders' comments, as well as those of Congressman Peterson, above.) So, hold onto your armrests, and let me show you another 19 more (new) myth-busting realities, (above and beyond the 10 that I detailed last month), that tell us the same thing--economics IS as much of an art as it is a science--right here:
# # #
2.) TOP WALL STREET ANALYST MEREDITH WHITNEY SAYS DOUBLE-DIP RECESSION IS LIKELY IN 2010
CNBC: Stocks Overvalued, Recession Will Return: Meredith Whitney
Published: Monday, 16 Nov 2009 | 4:51 PM ET
By: CNBC.com
Stocks are overvalued and the US economy is likely to fall back into a recession next year, well-known analyst Meredith Whitney told CNBC.
"I haven't been this bearish in a year," she said in a live interview. "I look at the board and every single stock from Tiffany to Bank of America to Caterpillar is up. But there is no fundamental rooting as to why these names are up--particularly in the consumer space."
In a wide-ranging interview, Whitney, CEO of the Meredith Whitney Advisory Group, also said:
* She was disappointed that Fed Chairman Ben Bernanke didn't spell out how the Federal Reserve planned to exit "the biggest Fed program to date, which is the mortgage-backed purchase program." In a speech earlier Thursday, Bernanke said the central bank was watching the dollar's decline but is likely to keep interest rates low.
* The US consumer was going through the biggest credit contraction ever--even bigger than that during the Great Depression. "That credit contraction is accelerating," she said. "There's nowhere to hide at this point."
"I don't know what's going on in the market right now because it makes no sense to me," she said.
--SNIP--
"The scariest thing about the Fed's program is that the money on the sidelines isn't going to support that asset class," she added. "So the trillion dollars of Fannie (Mae), Freddie (Mac) and mortgage-backed securities that the Fed is holding--there's no substitute buyer there."
Whitney also noted that the banking sector was still inadequately capitalized, and residential real estate was still tanking; and, it "remains a much bigger threat than the commercial property market."
Whitney also made note of the fact that homeowners simply won't be able to stay above water (meaning they'll owe more on their homes than they're worth).
A few months ago, both Barclay's and Deutschebank forecast that 48% of all U.S. homeowners would be under water by the end of 2010.
# # #
3.) MULTIPLE STUDIES DEMONSTRATE: "MILITARY SPENDING IS INCREASING UNEMPLOYMENT AND REDUCING ECONOMIC GROWTH."
(h/t George Washington and Naked Capitalism)
Over the past few days, George Washington has brought to our attention three studies that dispel the myth that waging war and increasing defense spending are efficient means by which we may create jobs. In fact, the studies he cites demonstrate that military/defense spending are among the most inefficient expenditures a society can make to extricate themselves from an economic downturn.
Among his sources, Washington notes commentary from economist Dean Baker and the Center for Economic Policy Research ("CEPR"):
Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.
A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.
Global Insight's model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.
The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low...
The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.
Also checkout this link to Washington's guest post over at Naked Capitalism: "Guest Post: Confirmed - Defense Spending Creates Fewer Jobs Than Other Types of Spending."
So, the next time someone makes the perverse misstatement, "What our economy needs is a good war," especially when we're already involved in two incursions as I write this, point them to the links noted, above.
# # #
4.) ABOVE AND BEYOND OTHER MARKET FACTORS, WALL STREET COMMODITIES SPECULATION IS--AND HAS BEEN--SIGNIFICANTLY DRIVING UP THE COST OF OIL, NOT TO MENTION MOST EVERYTHING ELSE.
Numerous reports and commentary over the past few days, including published statements in the last week from NYU economist Nouriel Roubini, have been surfacing that corroborate stories reported earlier this year which clearly lay much of the blame for increased oil prices, both now and in the lead-up to the market meltdown(s) last Fall, squarely on the shoulders of commodities speculators from Goldman Sachs, Morgan Stanley, JPMorgan Chase and other Wall Street firms.
There's an excellent piece on this that appeared on Sunday over at the EconoBrowser blog, entitled: "Commodity Inflation."
Commodity inflation
Econobrowser
November 15, 2009
Why are the prices of so many commodities rising in an economy that seems to remain quite weak?
The projected 8%-plus expansion of China's economy, with similar numbers expected from India, this year, account for a significant portion of this, but not all of it--perhaps not even most of it, based upon the analysis of many of late.
Econobrowser notes that based upon: "...the percent change between January 6 and November 11 in the cash prices of 19 commodities reported in the Wall Street Journal...the average commodity in this list has appreciated 37% since the start of the year:"
butter 35.0%, coffee 21.8%, cocoa 20.2%, copper 89.1%, corn minus 8.3%, cotton 38.6%, gold 32.1%, hogs 2.7%, oats 13.4%, oil 63.2%, lead 81.9%, palladium 75.9%, platinum 61.7%, silver 59.1%, minus steel 0.9%, sugar 73.6%, tin 22.5%, wheat minus 26.6%, zinc 55.4%, average 37.4%, euro 12.0%
(Bold type is diarist's emphasis.)
So, despite increased demand from a few national economies (i.e.: China and India, etc.), and even with a semi-modest debasement of the dollar of late, something's still off-kilter according to many...
Here are some of Roubini's comments from a Monday interview with HardAssetsInvestor.com via accidentalhuntbrothers.com: "Roubini On The Record: Commodities Will Crash, Position Limits Needed." (h/t to ZeroHedge)
...Nouriel Roubini, chairman, RGE Monitor (Roubini): Well, in my view, commodity prices have increased since the beginning of the year too much, too fast, when compared to the improvement in economic fundamentals...there could be a correction in commodity prices in 2010.
Take oil prices: They have gone up from $30/barrel to over $80, at a time when demand is back to 2005 levels, and oil inventory is at all-time highs. Part of the increase is justified by fundamentals. But part of it is essentially this wall of liquidity chasing assets, and the effect of carry trade on the U.S. dollar, driving further higher these commodity prices.
...the fundamentals of supply and demand actually suggest that, from now on, oil and other commodity prices should be lower, rather than higher.
--SNIP--
I would say that if there were a reason we had the global recession last year, it wasn't just Lehman or the subprime mortgage problem; it was that when oil went to $145. That was a major, real trade shock negative, and a real disposable-income shock for the U.S., Europe, Japan, China and all the other oil-importing and commodity-importing nations around the world. That kept the world in recession when oil was at $145. Now, I feel that oil at $100 is going to tip the world into a double-dip recession.
--SNIP--
The economy is on its knees, trying to rise. If oil were to go because of nonfundamental reasons toward $100, then I would say oil at $100 would be like a big hammer beating on the head of the global economy. At current levels, oil prices aren't justified, but they can go higher because of market dynamics and speculation; much higher.
--SNIP--
I'm in favor of position limits, because I think this volatility in oil prices is severely damaging the global economy. When oil goes to $145, we have a global recession. When oil goes to $30, nobody invests in new capacity. And these swings in boom and bust in oil prices are extremely damaging to economic growth. It's time to control it. If we don't control it, these booms and busts are going to become more severe, more damaging and more risky.
--SNIP--
I care about the real economy. I care about not having another global recession. If people are speculating on oil, and that pushes oil up to $145 like last year--I'm in favor of limits on that.
Let's segue from Roubini's commentary into this absolutely stunning assessment from the Wall Street website, Phil's Stock World: "Goldman's Global Oil Scam Passes The 50 Madoff Mark."
I strongly recommend reading the entire piece: "The Global Oil Scam: 50 Times Bigger than Madoff."
The Global Oil Scam: 50 Times Bigger than Madoff
Philip Davis
$2.5 Trillion - That's the size of the global oil scam.
It's a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs). That's right - $2.5Tn is 50 TIMES the amount of money that Bernie Madoff scammed from investors in his lifetime, yet it is also LESS than the MONTHLY EXCESS price the global population is being manipulated into paying for a barrel of oil.
Where is the outrage? Where are the investigations?
Goldman Sachs (GS), Morgan Stanley (MS), BP (BP), Total (TOT), Shell (RDS.A), Deutsche Bank (DB) and Societe Generale (SCGLY.PK) founded the Intercontinental Exchange (ICE) in 2000. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.
A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate "round-trip" trades. " Round-trip" trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple.
"Traders of the the ICE core membership (GS, MS, BP, DB, RDS.A, GLE & TOT) wouldn't really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and "squeezing" those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate." - Chris Cook, Former Director of the International Petroleum Exchange, which was bought by ICE...
The article continues to provide us with many provocative statements of fact and related commentary, including:
a.) Goldman Sachs and a handful of other Wall Street firms have "TRIPLED the price of commodities" over the past few years.
b.) Cook, the former Director of the International Petroleum Exchange (see quote in paragraph above), makes particular note of the 15-year relationship between Goldman Sachs and BP (British Petroleum). We're told:
...long term funds have been lending money to producers - effectively interest-free - and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.
c.) Exponentially greater numbers of commodities contracts--with no real underlying commodity created to actually support those contracts--are purchased every month.
In other words, these commodities folks are at a casino...
...Every single one of those traders know it is not even possible for 80% of the contracts they are trading to be fulfilled - it's a joke, but the joke is on YOU!
For additional background on this, also checkout: "How Oil Speculation Affects Oil Prices."
# # #
5.) NATE SILVER'S SPECULATING THAT REGULATORY REFORM MAY BE "THE" HOT-BUTTON ISSUE OF THE 2010 ELECTION CYCLE; BUT FED CHAIR BEN BERNANKE DISAGREES, DESPITE TALKING OUT OF BOTH SIDES OF HIS MOUTH AND PROVIDING LIP SERVICE TO THE CONTRARY. (I believe we must include unemployment at the top of any "2010 Hot Issues List," as well, but more about that, farther down below.)
While Silver covers the bank breakups, and refers to it as an issue that'll fracture both sides of the political spectrum, the reality is that Fed Chair Ben Bernanke was caught speaking out of both sides of his mouth on the issue, as recently as Monday: "Bernanke Signals Support to Let U.S. Shrink Firms." Just read this to understand the Kabuki involved, and the absurdity of it all...
Bernanke Signals Support to Let U.S. Shrink Firms
By Alison Vekshin
Nov. 16 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said regulators should have the power to shrink banks that pose risks to markets, signaling support for proposals in Congress that let the U.S. cut the size of financial companies.
"The supervisors should be allowed by law to insist that the company divest itself or shrink its activities," Bernanke said today in response to a question after a speech to the Economic Club of New York.
Congress is considering legislation giving government the power to force the breakup of a firm that has become so large that its failure in bankruptcy could threaten the economy. Lawmakers are seeking to avoid ad hoc actions such as last year's $700 billion bailout of large firms, including New York- based insurer American International Group Inc.
Bernanke said imposing the Glass-Steagall Act, which split investment-banking from lending and deposit-taking, on a case- by-case basis "would not be constructive." The law was repealed in 1999.
Many firms stumbled by making commercial loans while other lenders were tripped up by engaging in "market-making activities," Bernanke said. "So the separation of those two things per se would not necessarily lead to stability," he said.
Bold type is diarist's emphasis.
The answer really IS to reinstate Glass Steagall, as Yves Smith, over at Naked Capitalism explained last Thursday. However, the bullshit's running deep up on The Hill, and the end result will be more likely in-line with the extremely disappointing results we've seen coming out of the House on this matter over the past few weeks. (If you're in doubt, refer to my comments about regulatory capture, up at the top of this diary!) For more on what's occurred to date, in this regard, check this NYT editorial out, "[http://www.nytimes.com/...
The State of Financial Reform]," as well as this report, "Derivatives Reform Weakened By Two Little-Noticed Amendments."
"The Kanjorski "We're Tough on TBTF" Headfake"
Yves Smith
Naked Capitalism
Thursday, November 12, 2009
Dear God, if you read the media, you'd really think the Congressional huffing and puffing at the banking industry was going to solve the "too big to fail" problem, or even make much of a difference.
Folks, I hate to tell you, these remedies fall so far short of what it would take as to constitute a complete joke. And I am cynical enough to believe that the industry is secretly delighted, its bitter howls to the contrary (now it admittedly may be a shocker to them that they might have to be a wee bit inconvenienced in the interests of appeasing the public). Remember the lesson of the Barney Frank derivatives bill: even that weak offering was watered down to nothing. The Kanjorski salvo is the first round, and the banks are going to get this cut back, substantially. And Kanjorski has unwittingly played into their hands. But the theater certainly is impressive.
--SNIP--
Now admittedly, the Kanjorski proposal would reinstitute Glass Steagall by splitting commercial banking operations from investment banking and thus lead to some pretty dramatic surgery at JP Morgan (hiving off Chase Manhattan), Citigroup, and Bank of America. But while that would affect the scope of operations (and thus the pay packages for the CEOs, since top level pay is correlated with asset size of the entity) of the highest ranks, it would have comparatively little impact at the business unit level.
This is a 1930s remedy for 21st century banking. The Kanjorski proposal does remarkably little to reduce TBTF risk. The real problem is not size, and this approach puts the focus on completely the wrong issue. So if this solution does come to pass, Congress will have spent a huge amount of political capital on a largely ineffective solution.
Smith continues on to explain that this is what's really needed:
1.) proprietary trading (in-house trading for management, etc.) should be barred
2.) banks should have their "overnight positions" monitored, to insure that they're not frontrunning or tailgating (i.e.: following or jumping ahead of) their client's stock market "plays"
3.) TBTF firms should be out of the commodities sector, entirely; governments shouldn't be in the business of backstopping these trades (they are, today, with our money, too)
4.) Loans to customers of these firms, for trading purposes, should be prohibited, as well
She concludes:
So that is why the Kanjorski approach, despite the tough talk and possible disruption, is actually a win for the industry, even if a somewhat extreme version (remarkably) were to pass. It means no one is on the trail of the draconian measures needed to contain the risks the industry poses to the public at large.
The only viable solution to the misbranded TBTF problem is to require systemically important firms (ones in the OTC debt businesses, which thanks to the development of "market based credit" is now essential to modern capitalism) to exit all activities that are not socially essential and therefore deserving of government support (pure fee businesses that pose no risk to the taxpayer would be allowed). The permitted activities are regulated intrusively, with tough rules on capital requirements, and product scope (new products would be subject to approval to make sure they were socially productive, that the regulators understood them, and they did not result in increased risk to taxpayers). In other words, an effective solution requires more extensive dismemberment than anyone plans right now, and still requires heavy regulation of the crucial bits that will inevitably be taxpayer backstopped.
Bold type is diarist's emphasis.
Naomi Prins, a former managing director at Goldman Sachs had this to say on Saturday: "Don't You Think It's Time to Reinstate the Laws That Would Have Prevented the Financial Crash?"
Don't You Think It's Time to Reinstate the Laws That Would Have Prevented the Financial Crash?
By Nomi Prins, AlterNet. Posted November 14, 2009.
It's been 10 years since Washington repealed the Glass-Steagall Act, the moment we got royally screwed by the banking system -- and we're still paying the price.
--SNIP--
Fast-forward to now and must of us know how devastatingly expensive that signature was for the American public. Yet, despite our government having deployed or made available over $14.1 trillion worth of federal subsidies to fix Wall Street, the banking landscape is less stable than it was before last year's crisis. And, despite national unemployment approaching double digits, and another record quarter of foreclosures, we stand farther away from the intent of Glass Steagall than ever.
Banks weren't handled with kid gloves then. They were treated like the spoiled, reckless, destructive beings they were.
--SNIP--
We need to specifically reinstate section 16 of the Glass-Steagall Act that had restricted national commercial banks from engaging in most investment banking activities, up to a certain small percentage, coming from client directives, not their own proprietary trading. And, on the flip side, we need to reinstate section 21 that restricted investment banks from engaging in any commercial banking up to a certain percentage limit.
Doing these two things, would reduce the more systemically risky competitive desires between these two types of banks that spurs them to merge into institutions that are too big to exist without our help, or take the kinds of leveraged risks that drive short-term profits and bonuses, at the expense of long term financial system stability.
--SNIP--
Plus, we need to force the Fed to do its job to enforce existing limits, or give that enforcement power to the FDIC or another body that shows itself capable of performing this basic regulatory function. Today, two banks, Bank of America and Wells-Fargo are above 10 percent deposit concentration limits, and JPM Chase is close to 10 percent. Thank you for that, Fed. You're fired.
It's time to put the beast back in its cage, while taming it, by re-instating Glass Steagall, and keep it from inflicting even more danger on the rest of us. Meanwhile, we need to support all those in Washington that get this, and keep pressuring those who don't.
Meanwhile, Ben's getting a quick lesson in politics: "Under Attack, Fed Chairman Studies Politics."
Under Attack, Fed Chairman Studies Politics
By EDMUND L. ANDREWS
Published: November 10, 2009
WASHINGTON -- With the Federal Reserve under more intense attack than at any time in decades, Ben S. Bernanke, the professorial chairman of the central bank, was schooled last month in how to handle the increased political demands of his job.
Representative Barney Frank, left, said of Ben S. Bernanke, the Fed chairman, right: "Ben Bernanke turns out to have better political instincts than anybody thought."
--SNIP--
But when he sat down shortly after 8 a.m. on Oct. 1 at the Rayburn House Office Building for coffee and muffins with Representative Barney Frank, the rumpled and wisecracking chairman of the House Financial Services Committee, he took in some blunt advice.
Voters had become suspicious and unnerved by the Fed because of its trillion-dollar efforts to bail out the financial system, Mr. Frank warned. If the Fed really wanted to survive the disgruntlement in both parties, he continued, Mr. Bernanke would have to step back and let him devise a compromise.
Reluctantly, the Fed chairman agreed to reduce his own visibility on the issue and let Mr. Frank take the lead.
It was just one example of how the Fed has been forced to scramble as its power comes under more fire than at any time in decades.
--SNIP--
On one front, the Fed faces populist anger from both left-wing Democrats and right-wing Republicans about its power and secrecy. At the same time, officials are locked in brutal but arcane battles about who should oversee Wall Street and big banks as Congress tries to pass a sweeping overhaul of financial regulation.
--SNIP--
But Fed officials have been steely in protecting their two top priorities: the Fed's political independence on monetary policy and the Fed's role as undisputed overseer of financial institutions deemed "too big to fail."
If what's already happened in the House Financial Services Committee (see the NY Times editorial, above) is any indication of what lies ahead for the Federal Reserve, then we're just scratching the surface of how little's actually changing with regard to the effort to actually "reform" matters going forward.
It's up to us to not let the Republicans outflank us and play games with these regulatory reform realities.
(Diarist's note/disclosure: I actually worked with Barney Frank, briefly in 1979, on a Boston-area campaign. The guy always was one of my favorite politicians; but, I've got to say, I'm really disappointed in his performance over the past couple of months, at least as far as his management of the House Financial Services Committee is concerned.)
# # #
6.) GJOHNSIT MIGHT JUST BE THE BEST DIARIST ON THE ECONOMY IN THIS COMMUNITY. A FEW DAYS AGO HE WARNED US ABOUT SOMETHING THAT I'VE BEEN BLOGGING ABOUT FOR OVER TWO YEARS:
"The government bailout bubble may be about to bust"
From gjohnsit: "After posting massive losses, yet again, Fannie and Freddie have warned that they will be needing another round of bailouts in the near future."
Fannie Mae and Freddie Mac, already reeling in red ink, are warning they could face additional losses from the weakening condition of mortgage-insurance companies.
Fannie and Freddie together have required capital injections from the Treasury of $112 billion since the government took them over through conservatorship last year. Their need for government support would have been greater without collecting on claims from mortgage-insurance companies. Fannie and Freddie have received payouts of $2.3 billion and $658 million, respectively, from mortgage insurers through September this year.
But as conditions for mortgage insurers deteriorate, Fannie and Freddie have warned that their claims against the insurers may not be paid in full.
Gjohnsit continues in his diary to detail massive problems in a third government housing agency, the FHA (Federal Housing Authority). Between these three entities, we're talking about virtually 100% of the entities that ultimately underwrite all mortgages in the U.S., today.
So, with all of these problems occurring in our nation's mortgage infrastructure, as it relates to many trillions of dollars in taxpayer funds, it's quite disconcerting to find out, in the same 24-hour period last week, that the sole Inspector General for Fannie Mae and Freddie Mac was removed from his post. Talk about bad timing! See: " Fannie and Freddie Fire Their Own Inspector General."
Fannie and Freddie Fire Their Own Inspector General
Huffington Post
First Posted: 11-10-09 06:19 PM | Updated: 11-10-09 07:49 PM
There is no independent auditor overseeing the federal agency responsible for some $6 trillion in home mortgages, because the Department of Justice's Office of Legal Counsel ruled that the agency's inspector general didn't have authority to operate, according to internal memos obtained by the Huffington Post.
The ruling came in response to a request from the Federal Housing Finance Agency itself -- which means that a federal agency essentially succeeded in getting rid of its own inspector general...
Understating this matter, it's problematic, at least to the few folks that have been paying attention to this story...like Jonathan Weil over at Bloomberg, from just under 15 months ago: "Freddie, Fannie Scam Hidden in Broad Daylight: Jonathan Weil."
Freddie, Fannie Scam Hidden in Broad Daylight: Jonathan Weil
Commentary by Jonathan Weil
Sept. 9 (Bloomberg) -- When the history is written on the collapse of Fannie Mae and Freddie Mac, it will go down in the annals of corporate scandals as one of the greatest accounting scams committed in broad daylight.
All anyone had to do to know the government-guaranteed mortgage financiers were insolvent was read their financial statements. You didn't need a trained professional eye to discern this open secret, only a skeptical one.
Just last month, Fannie and Freddie said their regulatory capital was $47 billion and $37.1 billion, respectively, as of June 30. The Treasury Department now says it may have to inject as much as $200 billion of capital into the two companies. Nothing much changed at the companies in that span. They just couldn't get the government to keep up the ruse any longer.
To have believed those capital figures, you first needed to accept two key assertions by the companies. The first was that the mortgage-market meltdown was a temporary blip. The second was that Fannie and Freddie both would be wildly profitable for decades to come, once the blip was over.
These weren't the only fairy tales Fannie and Freddie told. They're just the ones that had the biggest impact on their calculations of regulatory capital. Had Fannie and Freddie ever backed off these predictions, they would have been officially insolvent, even under the government's lax standards.
Until late last week, though, nobody with any authority was willing to call them on it. That's why Fannie and Freddie were able to avoid a government takeover for so long...
# # #
7.) FORMER BANK OF AMERICA LEAD ANALYST DAVID ROSENBERG SAYS WE HAVE AN 11,000,000-JOB "BUFFER"
"11 Million Job Buffer From Efficiency And Part Time Workers Before Even One Person Needs To Be Rehired"
Zero Hedge
Submitted by Tyler Durden on 11/11/2009 09:34 -0500
A startling observation out of David Rosenberg is that with the current unemployment number (whatever it may be: 10.2%, 17.5%, 90%), even assuming an end to workforce outflows, there is a buffer equivalent to almost 11 million people, consisting of increased worker productivity and massive newly-created temporary positions, that can be drawn upon before even one person of those laid off recently, has to be rehired. This is disastrous for the Obama administration, especially at a time when it is actively speculating on Stimulus #2 in order to spur any kind of job creation ahead of mid-term elections.
Other stats of note as pointed out by Rosenberg in this story:
For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit.
During this two-year recession, employment has declined a record 8 million. Even in percent terms, this is a record in the post-WWII experience.
Looking at the split, there were 11 million full-time jobs lost (usually we see three million in a garden-variety recession), of which three million were shifted into part-time work.
There are now a record 9.3 million Americans working part-time because they have no choice. In past recessions, that number rarely got much above six million.
The workweek was sliced this cycle from 33.8 hours to a record low 33.0 hours -- the labour input equivalent is another 2.4 million jobs lost. So when you count in hours, it's as if we lost over 10 million jobs this cycle. Remarkable.
The number of permanent job losses this cycle (unemployed but not for temporary purposes) increased by a record 6.2 million. In fact, well over half of the total unemployment pool of 15.7 million was generated just in this past recession alone. A record 5.6 million people have been unemployed for at least six months (this number rarely gets above two million in a normal downturn) which is nearly a 36% share of the jobless ranks (again, this rarely gets above 20%). Both the median (18.7 weeks) and average (26.9 weeks) duration of unemployment have risen to all-time highs.
The longer it takes for these folks to find employment (and now they can go on the government benefit list for up to two years) the more difficult it is going to be to retrain them in the future when labour demand does begin to pick up. Not only that, but we have a youth unemployment rate now approaching a record 20%. Again, this is going to prove to be very problematic for employers in the future who are going to be looking for skills and experience when the boomers finally do begin to retire.
Then again, we're hearing that most of the numbers posted by our government are rather flawed these days, per my diary from 11/9/09: "Breaking: BLS, Fed, BEA, et al 'Overstate Strength of Economy'." But, a known--and still uncorrected--undercount of 75,000 jobs lost per month, even if it is in the BLS' Household Survey? Come on!
# # #
8.) REPORT: 10 STATES FACE LOOMING BUDGET DISASTERS...AND THEN THERE'S NEW YORK AND OTHERS
"Report: 10 states face looming budget disasters"
By JUDY LIN (Associated Press Writer)
From Associated Press
November 11, 2009 5:18 PM EST
SACRAMENTO, Calif. - A study released Wednesday warns that nine states are barreling toward an economic disaster similar to California's ongoing fiscal crisis that has been marked by IOUs and budget-busting deficits.
The budget woes could mean higher taxes, accelerated layoffs of government employees, more crowded classrooms and fewer services in the coming year for some of the nation's most populous states.
Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin join California as those most at risk of fiscal calamity, according to the report by the Pew Center on the States.
Double-digit budget gaps, rising unemployment, high home foreclosure rates and built-in budget constraints are the key reasons.
The analysis urged lawmakers and governors in those states to take quick action to head off a wider economic catastrophe. The 10 states account for more than one-third of America's population and economic output, according to the report...
So, I live in New York, and I breathed a brief sigh of relief because my home state wasn't on this list...only to see this story in my local papers on Monday: "N.Y. $10 Billion Budget Gap Looms as Lawmakers Return"
N.Y. $10 Billion Budget Gap Looms as Lawmakers Return
By Michael Quint
Nov. 16 (Bloomberg) -- A month after New York Governor David Paterson proposed a plan to narrow a $10 billion budget gap the state faces in the next 17 months, lawmakers are set to return to the state capital of Albany today with no agreement in place.
Paterson's plan for mid-year spending cuts to education and Medicaid spending, the two largest parts of the state's $133.2 billion budget, have been stumbling blocks since he made his proposal Oct. 15. A weekend of negotiations among staff and leaders of the Senate, Assembly and Division of Budget failed to produce agreement last night.
After calling lawmakers "afraid politically" of interest groups that support spending on schools and health care, Paterson said in an interview yesterday on New York City radio station WBLS that he was willing to "mortgage my political future" to balance the budget.
Schools "will not have to lay off teachers" and "they will not have to raise school taxes," Paterson said. "No Medicaid patient will lose services," he said. The governor scheduled six radio appearances around the state this morning to press his case.
Since issuing his budget plan, Paterson has warned that New York may confront a California budget liquidity squeeze that forced that state to issue IOUs in an effort to conserve cash. U.S. states collectively are closing $250 billion of budget deficits and will be forced to grapple with diminished revenue until at least 2012, the National Governors Associations and the National Association of State Budget Officers said in a report issued Nov. 12.
Obviously, this begs the question concerning the AP story, up above: If New York isn't among the "list of 10," how many more states are in dire need of ongoing assistance?
# # #
9.) "Empire State Manufacturing General Business Conditions Index Plunges 11 Points To 23.5 In October"
There's just NO way to "spin" THIS! It's brutal.
Empire State Manufacturing General Business Conditions Index Plunges 11 Points To 23.5 In October
Zero Hedge
Submitted by Tyler Durden on 11/16/2009 09:26 -0500
Cash for Clunkers hangover is permeating everywhere, with the latest casualty being the Empire States Manufacturing Index General Business Conditions, which tumbled from 34.6 to 24.5 in October. Never one to leave on a sour note, the NY Fed's survey indicated that respondents are even more optimistic even as coincident data trends turn negative, curiously on expectations of deteriorating margins, and a hope that no additional cash will have to be spent as the "new normal" is attained.
Overall the decline was pervasive across virtually all measured verticals:
From the report:
The general business conditions index remained positive for a fourth consecutive month, although it dropped 11 points, to 23.5, from October's relatively strong level. Forty-three percent of respondents indicated that conditions had improved, while 19 percent reported that conditions had deteriorated. The new orders and shipments indexes both posted similar declines. The new orders index fell from 30.8 to 16.7, and the shipments index declined from 35.1 to 13.0. After turning positive in October, the unfilled orders index drifted back below zero, ending at minus 2.6. The delivery time index also fell below zero, to minus 2.6. The inventories index remained near last month's level, at minus17.1...
# # #
10.) "Trade Deficit Increases in September"
Trade Deficit Increases in September
by CalculatedRisk on 11/13/2009 08:37:00 AM
The Census Bureau reports: The ... total September exports of $132.0 billion and imports of $168.4 billion resulted in a goods and services deficit of $36.5 billion, up from $30.8 billion in August, revised. September exports were $3.7 billion more than August exports of $128.3 billion. September imports were $9.3 billion more than August imports of $159.1 billion.
--SNIP--
Imports and exports increased in September. On a year-over-year basis, exports are off 13% and imports are off 21%.
--SNIP--
Import oil prices increased to $68.17 in September - up more than 50% from the prices in February (at $39.22) - and the seventh monthly increase in a row. Import oil prices will probably rise further in October.
The major contributors to the increase in the trade deficit were the increase in oil prices, and more imports from China. Also - the deficit is higher than expected, suggesting a downward revision to Q3 GDP.
Well, I actually had 20 new examples of our "non-recovery" (i.e.: our "new normal") ready to post, but I'm so bummed out after posting the first new set of 10, I'm going to stop here...it's enough reality for one day....even for me. But, with housing, consumer spending (one of many topics on which I didn't even post my data in this diary--and the "ex-automotive" numbers were below expectations for October, btw), exports, joblessness, an absurdly oversold stock market, much more than another half-trillion dollars in bank writeoffs to be posted in the next quarter (another topic I didn't get to), Wall Street commodities speculation, impending draconian cuts in state budgets, and warnings of a double-dip recession now front and center, I think it might be time for us to re-calibrated the "outrage meter."
Peace!