by ilene - December 5th, 2010 6:48 pm
PIMCO’s Bill Gross’ monthly letter for December is out and it speaks to a lot of themes FMMF has been touching on for years – a very nice read for those of you not familiar with his work. I also embedded a video of an appearance of his yesterday on CNBC.
Full letter below – hit fullscreen to make it easy to read
Some key points:
- The global
economyis suffering from a lack of aggregate demand. With insufficient demand, nations compete furiously for their share of the diminishing growth pie.
- In the U.S. and Euroland, many policies only temporarily bolster consumption while failing to address the fundamental problem of developed economies: Job growth is moving inexorably to developing economies because they are more competitive.
- Unless developed economies learn to compete the old-fashioned way – by making more goods and making them better – the smart money will continue to move offshore to Asia, Brazil and their developing economy counterparts, both in asset and in currency space.
Two ways the U.S. can address this – the hard (but long term healthy) way or the easy (but long term unhealthy) way. You can guess which way we will ultimately go….
The right way:
- The constructive way is to stop making paper and start making things. Replace subprimes, and yes, Treasury bonds with American cars, steel, iPads, airplanes, corn – whatever the world wants that
by ilene - November 13th, 2010 5:19 am
Fraud and Complicity Are Now the Lifeblood of the Status Quo (Banality of Financial Evil, Part 2)
The status quo would collapse were systemic fraud and complicity banished. Rather than the acts of evil conspirators, they have become the foundation of the U.S. economy and financial system.
Though fraud and complicity are presented in the mainstream media as isolated conspiracies outside the status quo, the truth is that the status quo is now entirely dependent on fraud and complicity for its very survival. Every level of the status quo would immediately implode were fraud and complicity suddenly withdrawn from the system.
How is this true? let me count the ways.
1. The mortgage market. As I reported recently in this Daily Finance story, the private market for mortgage-backed securities is dead. Now that we all understand the entire mortgage is not just riddled with fraud and misrepresentation of risk, but it is entirely dependent on fraud and misrepresentation of risk to function, no one is willing to touch any of this debt--except if it is guaranteed by the Federal government (and thus by its taxpayers).
Now that the systemic fraud and misrepresentation of risk have been exposed, the $10 trillion mortgage market has ceased to function except as a dumping ground where private players can dump 100% of their losses on the taxpayers (profits were privatized, losses are socialized).
2. Foreclosures and our Banana Republic system of "law". There are two sets of laws (and two sets of books) in status quo America: one set of laws for "too big to fail" banks and Wall Street, and one for the rest of us peons.
3. Housing and commercial real estate (CRE). Does anyone seriously think housing is recovering from organic demand? Does anyone seriously think housing wouldn’t fall off a cliff if the Central State withdrew its collusive propping-up of the real estate market?
As I reported in These Numbers Paint a Bleak Picture for Housing, there is essentially no evidence that housing is recovering due to "organic" (that is, non-State-manipulated) supply and demand.
Rather, Home Prices…
by ilene - November 10th, 2010 9:04 am
Courtesy of Charles Hugh Smith, Of Two Minds
[Artwork: courtesy of William Banzai7]
The Banality Of (Financial) Evil
The financialized American economy and Central State are now totally dependent on a steady flow of lies and propaganda for their very survival. Were the truth told, the status quo would collapse in a foul, rotten heap.
Google’s famous "don’t be evil" is reversed in the American Central State and financial "industry": be evil, because everyone else is evil, too. In other words, lying, fraud, embezzlement, mispresentation of risk, material misrepresentation of facts, the cloaking of truth with half-truths, the replacement of statements of fact with propaganda and spin: these are not the work of a scattered handful of sociopaths: they represent the very essence and heart of the entire status quo.
Hannah Arendt coined the phrase the banality of evil to capture the essence of the Nazi regime in Germany: doing evil wasn’t abnormal, it was normal. Doing evil wasn’t an outlier of sociopaths, it was the everyday "job" of millions of people, Nazi Party members or not.
Not naming evil is the key to normalizing evil. Evil must first and foremost be derealized (a key concept in the Survival+ critique), detached from our realization and awareness by naming it something innocuous.
Normalization of the unthinkable comes easily when money, status, power, and jobs are at stake…. Intellectuals will be dredged up to justify their (actions). The rationalizations are hoary with age: government knows best, ours is a strictly defensive effort, or, if it wasn’t me somebody else would do it. There is also the retreat to ignorance, real, cultivated, or feigned.
Can any of the tens of thousands of people working on Wall Street or in the bowels of the Federal Reserve, Treasury, Pentagon, etc. truthfully claim they "didn’t know it was wrong" to mislead the citizenry, the soldiers, the investors and the buyers of their fraud? On the contrary, every one of those tens of thousands of worker bees and managers knows full well the institution they toil for is doing evil simply by hiding the truth of its operations.
The entire status quo of the American Empire is built on lies. Now the dependence on lies, fraud and misrepresentaion is complete; Wall…
by ilene - November 9th, 2010 5:02 pm
Courtesy of Robert Reich
Next time you hear an economist or denizen of Wall Street talk about how the “American economy” is doing these days, watch your wallet.
There are two American economies. One is on the mend. The other is still coming apart.
The one that’s mending is America’s Big Money economy. It’s comprised of Wall Street traders, big investors, and top professionals and corporate executives.
The Big Money economy is doing well these days. That’s partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It’s essentially free money to America’s Big Money economy.
Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They’re merging and acquiring other companies.
And they’re going abroad in search of customers.
Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They’re selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America’s biggest investors are also going abroad to get a nice return on their money.
So don’t worry about America’s Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.
The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America’s largest corporations are heading upward.
But there’s another American economy, and it’s not on the mend. Call it the Average Worker economy.
Last Friday’s jobs report showed 159,000 new private-sector jobs in October. That’s better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.
by ilene - November 7th, 2010 5:08 pm
Last year, Matt Taibbi made huge waves when he wrote what were the most circulated articles on Wall Street. Now, he’s crystallized his thoughts into a new book Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America.
I caught up with Matt to hear what he’s learned while following Wall Street and Washington during these most extraordinary times …
Damien Hoffman: In your new book Griftopia, you talk about how Wall Street and Washington have ironically got middle class America to support their agenda. How is this happening? Will it last?
Matt Taibbi: The Grifters have been getting people to support Wall Street’s political agenda by seducing them with a [Ayn] Randian and pseudo-libertarian ideology. It’s always been around, but it’s just reaching a fever pitch now. And it’s the only way ordinary people can be convinced to endorse a deregulatory agenda. I think it’s going to last.
Damien: In your experience at the Tea Party events, do they understand the cosmic irony that they basically just got robbed because there were no sheriffs left in the Wild West, yet now they all stand for a movement that prefers to keep it that way?
Matt: No, they don’t see the irony at all. And interestingly, a lot of them are real law-and-order types. I mean, they’re really into Cops and putting people in jail for smoking a joint. But when it comes to a financial crime, they have absolutely no interest in that whatsoever.
Basically, government regulation is the kind of stuff a lot of them see on a day-to-day basis, but in a different form. If they’re a hardware store owner, they see a local health inspector or an ADA inspector coming by to make sure they’re in compliance with something. These are all little annoyances and costs that they see when they interact with government. Unfortunately, that’s what they think is financial regulation. They don’t get that it’s a completely different ball game when you’re talking about JP Morgan Chase (JPM), Goldman Sachs (GS), and that level of power requiring oversight.
Damien: So, can you explain how what you call the grifter class pulled off this magnanimous trick?
by ilene - October 25th, 2010 1:53 pm
High fructose corn syrup, enriched bleached flour, and "natural flavor" is to bread like CDOS, subprime loans and reverse convertibles are to finance. – Ilene
Courtesy of James Kwak at Baseline Scenario
I just read Michael Pollan’s book, In Defense of Food: An Eater’s Manifesto, and what struck me was the parallels between the evolution of food and the evolution of finance since the 1970s. This will only confirm my critics’ belief that I see the same thing everywhere, but bear with me for a minute.
Pollan’s account, grossly simplified, goes something like this. The dominant ideology of food in the United States is nutritionism: the idea that food should be thought of in terms of its component nutrients. Food science is devoted to identifying the nutrients in food that make us healthy or unhealthy, and encouraging us to consume more of the former and less of the latter. This is good for nutritional “science,” since you can write papers about omega-3 fatty acids, while it’s very hard to write papers about broccoli.
It’s especially good for the food industry, because nutritionism justifies even more intensive processing of food. Instead of making bread out of flour, yeast, water, and salt, Sara Lee makes “Soft & Smooth Whole Grain White Bread” out of “enriched bleached flour” (seven ingredients), water, “whole grains” (three ingredients), high fructose corn syrup, whey, wheat gluten, yeast, cellulose, honey, calcium sulfate, vegetable oil, salt, butter, dough conditioners (up to seven ingredients), guar gum, calcium propionate, distilled vinegar, yeast nutrients (three ingredients), corn starch, natural flavor [?], betacarotene, vitamin D3, soy lecithin, and soy flour (pp. 151-52). They add a modest amount of whole grains so they can call it “whole grain” bread, and then they add the sweeteners and the dough conditioners to make it taste more like Wonder Bread. Because processed foods sell at higher margins, we have an enormous food industry pushing highly processed food at us, very cheaply (because it’s mainly made out of highly-subsidized corn and soy), which despite its health claims (or perhaps because of them) is almost certainly bad for us, and bad for the environment as well. This has been abetted by the government, albeit perhaps reluctantly, which now allows labels like this on corn oil (pp. 155-56):
“Very limited and preliminary scientific evidence suggests that eating about one tablespoon (16
by ilene - August 31st, 2010 3:59 am
Courtesy of The Pragmatic Capitalist
Over the course of the last 18 months I’ve been adhering to a macro view that can best be summed up as follows:
1) The explosion in private
sectordebt (excessive housing borrowing, excessive corporate debt, etc) levels would reveal the private sector as unable to sustain positive economic growth, de-leveraging and deflation would ensue.
2) Government intervention would help moderately boost aggregate demand, improve bank balance sheets, improve sentiment, boost asset prices but fail to result in sustained economic recovery as private sector balance
3) Extremely depressed estimates and corporate cost cutting would improve margins and generate a moderate earnings rebound, but would come under pressure in 2010 as margin expansion failed to continue at the 2009 rate.
The rebound in assets was surprisingly strong and the ability of corporations to sustain bottom line growth has been truly impressive – far better than I expected. However, I am growing increasingly concerned that the market has priced in overly optimistic earnings sustainability – in other words, estimates and expectations have overshot to the upside.
What we’ve seen over the last few years is not terribly complex in my opinion. The housing boom created what was in essence a massively leveraged household sector. The problems were compounded by the leveraging in the financial sector, however, this was merely a symptom of the real underlying problem and not the cause of the financial crisis (despite what Mr. Bernanke continues to say and do to fix the economy).
As the consumer balance sheet imploded the economy imploded with it. This shocked aggregate demand like we haven’t seen in nearly a century. This resulted in collapsing corporate revenues. The decrease in corporate revenues, due to this decline in aggregate demand, resulted in massive cost cutting and defensive posturing by corporations. This exacerbated the problems as job losses further weakened the consumer balance sheet position. Consumers, like, corporations, got defensive and began cutting expenses and paying down liabilities. Sentiment collapsed and we all know what unfolded in 2008.
by ilene - August 29th, 2010 5:00 am
Courtesy of Charles Hugh Smith, Of Two Minds
Unlike our Corporate/State Empire, the Roman Empire did not have privately held, transnational corporations running the bread and circuses.
My longtime friend G.F.B. recently asked, "Did the Roman Empire have corporations?" Based on my admittedly incomplete reading of Gibbons and a survey of Pompeii I am currently reading, I believe the answer is "no."
Yes, the Republic and later, the Empire, had ruling Elites and politically influential families who controlled immense wealth, but G.F.B.’s point was not about influence or wealth alone: Did the Empire flourish without accountability and personal responsibility?
In other words, were the Elites which controlled the Empire never held personally accountable? If so, then they may well have functioned as the equivalent of today’s corporations.
But history--and what a long history the Roman Empire carved--suggests individuals who failed paid a price.
In today’s Corporate Empire, the Elite individuals running the corporations can despoil, bribe, embezzle, cheat and collude and they completely evade accountability. Sure, the corporation pays a fine (or sets up a $20 billion fund with shareholders’ funds), but the people in charge who oversaw the skimming, bribery, collusion, profiteering, embezzlement, mismanagement of funds, violation of the public trust, etc. are never really accountable; instead, they are awarded golden parachutes worth millions of dollars for their service to the goal of enriching the Elites and owners of the corporation.
The much-touted Sarbanes-Oxley financial regulations do require that individuals vouch for the accuracy of the corporate accounting, but how many CEOs and CFOs are serving time for violating the Sarbanes-Oxley Act?
After the U.S. financial and mortgage sectors have been pillaged for years, how many individuals are under indictment for any finance-related crime, large or small? I think the evidence is overwhelming that Sarbanes-Oxley and the rest of the regulatory system which claims to invoke accountability is in fact a facsimile, a facade of righteousness maintained for P.R. purposes. Behind the screen, it’s all about scooping swag and then evading any accountability for that pillaging, collusion and corruption.
This is yet more evidence that the U.S. is a de facto Corporate/State Empire which benefits the Power Elites who have partnered private gain with global reach.
Please read Shadow Elite: Selling Out Uncle Sam: The Collision of State & Private Power for more on how this works…
by ilene - August 18th, 2010 11:37 pm
Courtesy of Yves Smith at Naked Capitalistm
A fund manager who will go unnamed mentioned to me that he is putting clients into bank stocks because they are trading at or below book value.
Now of course, individual stocks can and do always outperform the outlook for their sector, so there are no doubt particular banks whose stocks are cheap right now. But there are good reasons to question the notion that banks in general, and money center banks in particular, are a bargain.
First and perhaps most fundamental is the notion that bank equity is a readily-measured number, and that book value is therefore a useful metric. In general, even in companies in make-and-sell businesses, balance sheet items are subject to artful reporting. Notice, for instance, how every four or five years most big public companies take a writeoff that they classify as extraordinary, and equity shills dutifully exclude it from their calculation. In most cases, the writeoff is an admission that past earnings were overstated, but seldom is anyone bothered by what this says about the integrity of that company’s accounting or the acumen of its management.
Bank earnings, even under the best circumstances, involve a great deal of artwork, and most of all in the very big banks with large dealer operations. As Steve Waldman pointed out,
Bank capital cannot be measured. Think about that until you really get it. “Large complex financial institutions” report leverage ratios and “tier one” capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish “well capitalized” from insolvent banks, even in good times, and regardless of their formal statements.
Lehman is a case-in-point. On September 10, 2008, Lehman reported 11% “tier one” capital and very
by ilene - August 17th, 2010 4:42 pm
Courtesy of PAUL CRAIG ROBERTS writing at CounterPunch
The United States is running out of time to get its budget and trade deficits under control. Despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned a New York Times column, “Welcome to the Recovery.”
As John Williams (shadowstats.com) has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation. Warnings by Williams, Gerald Celente, and myself have gone unheeded, but our warnings recently had echoes from Boston University professor Laurence Kotlikoff and from David Stockman, who excoriated the Republican Party for becoming big-spending Democrats.
It is encouraging to see some realization that, this time, Washington cannot spend the economy out of recession. The deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.
However, the solutions offered by those who are beginning to recognize that there is a problem are discouraging. Kotlikoff thinks the solution is savage Social Security and Medicare cuts or equally savage tax increases or hyperinflation to destroy the vast debts.
Perhaps economists lack imagination, or perhaps they don’t want to be cut off from Wall Street and corporate subsidies, but Social Security and Medicare are insufficient at their present levels, especially considering the erosion of private pensions by the dot com, derivative and real estate bubbles. Cuts in Social Security and Medicare, for which people have paid 15 per cent of their earnings all their lives, would result in starvation and deaths from curable diseases.
Tax increases make even less sense. It is widely acknowledged that the majority of households cannot survive on one job. Both husband and wife work and often one of the partners has two jobs in order to make ends meet. Raising taxes makes it harder to make ends meet--thus more foreclosures, more food stamps, more homelessness. What kind of economist or humane person thinks this is a solution?
Ah, but we will tax the rich. The rich have enough money. They will simply stop earning.