California Collapsing

Peacenik has posted about the California situation before. It was bad then. It is worse now. And remember California is the future.

Peacenik tries to figure out why Ontario should be any different from California. Ontario's manufacturing is going the way of the dodo bird. Real estate is over priced. The TSX plunged almost 500 points yesterday. Unemployment is soaring. Pension plans are failing. Why should Ontario be any better off than California? Peacenik says it isn't. Cash out, Cash in, and prepare for collapse.

by Martin D. Weiss, Ph.D. 06-22-09

Washington and Wall Street seem to be treating California as if it were a sideshow in the financial circus of these turbulent times.

It’s not.

California is home to the largest manufacturing belt in the United States and to Silicon Valley, the nation’s largest high-tech center.

California is America’s most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.
California's Mortgage Nightmare

And it’s collapsing.

Major California counties are ground zero in the continuing mortgage meltdown:

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More Sausage Hiding: Banks

Now we see real reporting instead of the puff piece on Bloomberg yesterday:

In a move that confirmed the suspicions of many analysts, the agency called off plans to start a $1 billion pilot program this month that was intended to help banks clean up their balance sheets and eventually sell off hundreds of billions of dollars worth of troubled mortgages and other loans.

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

Translation:

The banks are still carrying these "assets" at well-above their actual market value. This means their balance sheets are showing them to be healthier than they really are.

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This is a fairly straight forward and understandable explanation of a large part of the current financial/credit crisis. The bank regulators are allowing American banks to do exactly what the Japanese did with their banks for more than 10 years. BTW the North American financial press excoriated the Japanese for doing this for more than 10 years. Now the financial press and the main stream media are colluding with the government, the banks, and the regulators to hide this information from the sheeple. The game is rigged. The banks are insolvent. Denninger says when the banks finally and inevitably explode everyone is going to lose every cent they have in the bank. Peacenik is digging a hole. You should too.

The Worst Case Scenario (Someone Has to Say It)

Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side.

As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession. Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range. A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity.

In January, recovery projections were pushed forward to late 2009. Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year. What are the chances that they finally have it right this time?

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With all the happy talk and irrational exuberance going on in the financial press and in the markets, Peacenik thinks its time for a splash of cold water. A bit of reality. Read the ten predictions in this article from Seeking Alpha. Many of these predictions are highly probable. If just one comes true the world as we know it is over. Peacenik hates to keep repeating Peacenik's self but the black hole of debt cannot be ignored.

Vietnam and Now: Lying and Deception "For the Good of the Country"

May 11, 2009

The lies, deceptions, misrepresentations and statistical legerdemain of the present financial meltdown remind me of the Vietnam era when the same sort of endless propaganda and deception was foisted on the American public "for the good of the nation."

The Vietnam War launched a great number of rich metaphors and ironies. We had to destroy the village in order to save it, etc. But beneath this tortured history lies a key point:

The entire justification for the war and its prosecution were constructed on conscious deceptions chosen by our elected and unelected leaders "for our own good." I think the process worked thusly: fearful the American public was tiring of the burdens of a global Cold War with global domination at stake, the U.S. Powers That Be did not trust democracy or the U.S. public to "make the right decision" which would serve "the best interests of the nation."

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Nice bit of history here from Charles Hugh Smith. They lied about Vietnam and they are lying about the financial crisis. They lie about everything. Peacenik is bemused by all the stories about how the corner is turned, the bottom is in. Even George Soros thinks the worst is over. Peacenik will continue to wait and see.....and watch the market continue to rally....on the basis of lies.

Max Keiser compilation - April 24-25 2009

Barry Ritholtz - April 27th, 2009, 3:15PM

Compilation of clips from Max Keiser’s news appearances for 24 & 25 April to discuss: the New Revolution in France as boss-nappings are all the rage and the G7 finance ministers meeting in Washington DC.

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Follow the link and watch Max keiser on Youtube. And give Peacenik a pitchfork.

The Real Criminals are Neither Lynndie England nor the AIG Traders

by Thom Hartmann

Whenever a politician or commentator bloviates about the brokers at AIG who are getting bonuses, we should all be remembering Lynndie England and Charles Granger. AIG brokers are to the financial meltdown what England was to the Iraq war.

Certainly she did things that were deplorable. But she thought they were legal (England, operating under orders to "soften up terrorists," even thought she was helping defend our nation). And to the extent that John Yoo's memos were law, arguably her actions were legal (although the Bushies never wanted it tested, so threw them to the wolves).

But the important point is that the real criminals of the Iraq War were not those like Lynndie England: they were George W. Bush, Dick Cheney, and Donald Rumsfeld (and their neocon buddies).

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Yes, this is the ultimate irony. The financial crisis the world now faces was the ultimate goal of the powers that be. They succeeded in "starving the beast". The succeeded in "drowning the gov't in the bathtub." They succeeded beyond their wildest dreams. The U.S. will be lucky to be able to afford food stamps for the hungry. Tent cities are already exploding all over the country. The precious private health care system will remain private. But no one will be able to afford it. The pharma industry will remain unregulated. But no one will be able to afford the drugs. They succeeded and now they are scared shitless. Unanticipated and uncontrollable consequences. Just a little revolution, and some riots and mayhem. A bit of anarchy.

It's all coming to you courtesy of the Republicans and their Democratic enablers. The same Democratic enablers who are getting all the airtime pushing the Blue Dog bullshit. Peacenik doesn't think the world deserves what is coming. But Peacenik understands why.

March 10 2009: Dinosaurs the size of banks

Ilargi: The US government and the Federal Reserve indicate that they will not let a big bank fail. They also hint that the uptick rule will likely be reinstated, which is great for banks that someone might want to short (many someones want to). Moreover, the drive to change fair value rules (were they ever executed?) gets so strong that blogger Karl Denninger, who's spent months clamoring for fair value and mark-to-market, today does a 180 and argues for a suspension of the all-too-rational principle. Thinking of a career in politics? Any idea of the damage a suspension would do? I think you do, Karl.

To top off today's party cake, Ben Bernanke once more reiterates (I know that’s double) that the recession "might end this year". Now, I watched Jon Stewart dig into Jim Cramer last night. Reading Bernanke's words this morning, my first thought was that I hope The Daily Show will do a similar "timeframe truth test" of Bernanke. Shrinking Ben has made so many ridiculous claims about the economy's health and its upcoming recovery since he took over, it should be a feast for the eyes and ears.

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It seems that the financial crisis has many in a pensive mood. Mish today is talking about material things, LK is pondering loss and how big 50 trillion dollars is, and Peacenik was contemplating the value of stuff and things and ideas and how things are valued. What would be the value of a chunk of gold on a desert island. What is the value of 50,000 shares of the Royal Bank in an information vacuum. What is the value of a question mark or a can of tuna.

But the markets were up big time yesterday based in small part on the belief that the worst is behind us. Jim Cramer declared a bottom. The CNBC pundits, excoriated by John Stewart just days ago, were giddy. Is this the end of Doom? Is this how a crisis ends? Is this the beginning of a new society, a new economy? Ilargi doesn't think so. Peacenik doesn't think so. Peacenik will remain alert and alarmed.

A.I.G. Reports $61.7 Billion Loss as U.S. Gives More Aid

By ANDREW ROSS SORKIN and MARY WILLIAMS WALSH
Published: March 2, 2009

The federal government agreed Monday morning to provide an additional $30 billion in taxpayer money to the American International Group and loosen the terms of its huge loan to the insurer, even as the insurance giant reported a$61.7 billion loss, the biggest quarterly loss in history.

The loss of $22.95 a share compared with a fourth-quarter loss in the period a year ago of $5.3 billion or $2.08 a share. For the year, A.I.G. lost $99.3 billion or $37.84 a share, compared with a profit of $6.2 billion or $2.39 a share for 2007.

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When Peacenik got up this morning and turned on the news, the news was all about the markets in Hong Kong and Tokyo being down. And the Dow futures were down too. Then at 6 a.m. comes the news that A.I.G. lost $61.7 billion in three months. And the U.S. gov't is going to give A.I.G. another $30 Billion. Do you think Peacenik likes all these numbers early in the morning. Peacenik can barely remember when to use question marks this early in the morning. But, Peacenik thinks something is happening. Oh yeah, the Bank of Canada is talking about "quantitative easing." Peacenik thinks that means "printing money" to inflate your way out of debt.

Nothing is working. The global stimulus plans are having no effect. Giving taxpayer money to insolvent companies is having no effect. Confidence is shot. Trust is shot. Yes dear readers, the black hole is hungry this morning. Insatiably hungry. Other than that it looks like a nice day.

James Galbraith: Obama Isn't Doing Enough to Solve the Financial Crisis

By Nick Baumann, MotherJones.com. Posted February 27, 2009.

There are six things Obama needs to fix as we approach "a long, profound, painful process of change."

The financial crisis is even worse than people think (and people already think it's pretty bad), and we aren't doing enough to stop it, economist and Mother Jones contributor James K. Galbraith told the House Financial Services Committee on Thursday morning. From his prepared testimony:

In 1930, John Maynard Keynes wrote, "The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history." That catastrophe was the Great Crash of 1929, the collapse of money values, the destruction of the banking system. The questions before us today are: is the crisis we are living through similar? And if so, are we taking adequate steps to deal with it? I believe the answers are substantially yes, and substantially no.

Galbraith pointed to six significant problems with the Obama administration's response to the financial crisis. First, he said, the White House is being way too optimistic:

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Peacenik looked and looked and looked and looked for some good news to head into the weekend. Peacenik found the Leaf score. Toronto 5, N.Y. Islanders 4. Other than that it is all bad. Bad foreign policy. Bad economic policy. Bad judicial policy. And the wingnuts are still dominating the airwaves and framing the debate. How Newt Gingrich or Karl Rove get on tv is beyond Peacenik. This article by Galbraith echos the comments of some of the now popular doomers. The status quo is not coming back. Business as usual is not coming back. A consumer driven economy is not coming back. Obama probably know this. If he tells the truth will that make things worse? Peacenik doesn't think maintaining the illusion is helpful at this point. Time for reality. Have a good weekend.

The Game Is Up

Inquiring minds are noting similarities between the implosion in Ireland and the implosion in California. Let's take a look starting with In Ireland, "the game is up".

DUBLIN — At 2 a.m., with time for compromise running out, the Irish prime minister finally presented his emergency plan for the floundering economy to the country’s trade union leaders.

He proposed an average 7 percent reduction in gross pay for bureaucrats, teachers, police, firefighters, road cleaners and everyone else on the public payroll, in the form of a levy to finance their pensions.

He made clear that without an agreement the government would do it anyway.

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Peacknik is noticing a sense of resignation in the blogosphere and the media that there is no acceptable solution to the economic crisis. It seems like nothing has changed.

Check out Denninger. Obama is spinning his tires and the Democratic controlled Congress is acting like they are in the minority. The "bad bank" solution probably won't work, and after weeks of talking about it, there still isn't even a plan. The U.S. senate just removed health care benefits for the unemployed from their stimulus plan. Republican wingnuts continue to dominate the airwaves. The UK is on the verge of the deepest slump in 60 years. The world is in a state of economic collapse.

Obama thought he could work with the Republicans in crafting a solution. That was a mistake. The republicans are only interested in obstruction. And now Obama is stuck with a cabinet and a bunch of advisors who are ill-suited to the task. What task you ask. The task of recognizing reality and coming clean with the American people and the world. And the task of instituting policies that will help the workers and not protect the criminals on Wall St. Peacenik asks again. Is anyone going to jail for the crimes that contributed to this financial crisis? An editorial in the Washington Post is not leadership.

The Whole World Is Rioting as the Economic Crisis Worsens -- Why Aren't We?

By Joshua Holland, AlterNet. Posted February 3, 2009.

Americans are rightfully angry about the economic decline, but with a few small exceptions, quietly so. Why? It depends on whom you ask.

Explosive anger is spilling out onto the streets of Europe. The meltdown of the global economy is igniting massive social unrest in a region that has long been a symbol of political stability and social cohesion.

It's not a new trend: A wave of upheaval is spreading from the poorer countries on the periphery of the global economy to the prosperous core.

Over the past few years, a series of riots spread across what is patronizingly known as the Third World. Furious mobs have raged against skyrocketing food and energy prices, stagnating wages and unemployment in India, Senegal, Yemen, Indonesia, Morocco, Cameroon, Brazil, Panama, the Philippines, Egypt, Mexico and elsewhere.

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Peacenik has been posting contradictory stories on whether people will riot or not, as they become poor, hungry, homeless and angry. Many commentators think the future will not be Mad Max like. Some commentators think the future will be Mad Max like. What does Peacenik think? Peacenik thinks there will be some rioting. Peacenik isn't sure what effect the violent suppression of rioting will have. The concentration camps are already constructed in the U.S. The police have their Tasers and Lasers. The science of crowd control is well developed. Will Peacenik riot? Will you?

Naomi Klein: Bailout = Bush's Final Pillage

By Naomi Klein, The Nation. Posted October 31, 2008.

The bailout has been designed to keep stealing from the Treasury for years to come.

In the final days of the election, many Republicans seem to have given up the fight for power. But that doesn't mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700 billion bailout out the door. At a recent Senate Banking Committee hearing, Republican Senator Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. "How much of it do you think may be actually spent by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bailout.

When European colonialists realized that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.

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Its Friday and Peacenik is feeling mellow. Paulson is ripping everyone off; giving $70 billion of public funds for bonus money to the same incompetent, corrupt bankers who caused this crisis. Bankrupting the U.S. treasury so that social security and medicare can be cut back or eliminated. And Harper no doubt is eyeing the same playbook in Canada. Whatever. Time for a couple of beers.

Black hole gapes for pensions

By Henry C K Liu
More than three years before the current financial crisis, in a series Greenspan, the Wizard of Bubbleland that began on September 14, 2005, I warned:

Through mortgage-backed securitization, banks now are mere loan intermediaries that assume no long-term risk on the risky loans they make, which are sold as securitized debt of unbundled levels of risk to institutional investors with varying risk appetite commensurate with their varying need for higher returns. But who are institutional investors? They are mostly pension funds that manage the money the US working public depends on for retirement. In other words, the aggregate retirement assets of the working public are exposed to the risk of the same working public defaulting on their house mortgages.

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Peacenik wonders what it will take before the sheeple get out their pitch forks. This article in the Asia Times documents the downward spiral not only of pension plans but of all savings. And the recent talk in the Toronto papers about helping Canadian pension plans may not help them at all. Peacenik doubts that there is enough money in the whole world to fill the black hole. Have a good weekend.

Wall Street Hustlers Built a $100 Trillion House of Cards and Stuck You with the Fallout

By Joshua Holland, AlterNet. Posted October 22, 2008.

Deregulation brought us hugely "leveraged" investments, and they brought us panicked markets and pain.

Debate over who is most to blame for the financial meltdown rages on against a backdrop of economic pain and anxiety that's unprecedented in the post-war era.

The bottom line: There was a feeding frenzy that drove housing prices far beyond what the fundamental laws of supply and demand would dictate. People certainly got in over their heads, but the ultimate responsibility for that lies with the investment bankers who cooked up exotic new ways to make risky investments look more secure than they actually were (I wrote about it recently here).

While the U.S. housing market is worth somewhere in the neighborhood of $10 trillion, it was Wall Street's wheeler-dealers -- and their lobbyists and allies who kept regulators out of their business -- who built a house of cards out of "exotic" mortgage-backed securities and other "derivatives" worth as much as 60 times that figure -- paper wealth backed by little more than the irrational belief that what goes up will never come down.

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Peacenik thought this was a pretty straightforward explanation of the root causes of the current financial crisis.