SPP Project Dead… For Now At Least

July 30, 2008

A bit of interesting/good news on the political front.  I wrote a few months ago about the ongoing efforts to promote the ‘Security & Prosperity Partnership’ of North America, or SPP.   The SPP is/was an unelected bureaucracy set up to explore ways for Canada, the USA and Mexico to work together on a number of issues ranging from immigration & border security to economics.   Some pundits in the press and blogosphere were warning that this was the first step in setting up a North American version of the European Community, with all three countries surrendering at least part of their sovereignty to an unelected power structure.   While the denials of such activity were frequent, promoters of the concept also admitted that they thought such integration would be a good idea, adding yet more gas to an already burning fire of speculation.

Well, the SPP backers have apparently thrown in the towel for now.   I found a link to a short article on World Net Daily regarding the death of the SPP.    Seems neither incoming president would favor the process, and it’s gotten a ton of bad press regarding the “The strategy of acting on technical issues in an incremental, bureaucratic way and keeping the issues away from public view..”  No shit, sherlock.   Not everyone in this country is asleep at the wheel, and when bureaucrats start meeting in private and signing agreements that our elected representatives cannot oversee, some people get nervous, and others get mad.    Secrecy in government is usually a bad thing, and is makes people suspicious.  If things are truly above board, then why operate in the shadows?

The SPP backers will continue to push the concepts of cooperation (a good thing, if properly supervised) and integration (not so good in my opinion).     Hopefully the new administration, regardless of party affiliation, will not have the same zeal for secrecy and ideology that the current one has.   One can dream, right?

NB:  I believe that most of my readers are of a more-or-less liberal mindset.  Maybe I’m mistaken… In case anyone thinks I’m off my rocker for hitting sites like WND, I generally try to read news sources from multiple viewpoints.   Spin is pretty much universal, and some news like this is only accessible via more ‘fringe’ media sources.  No one has a monopoly on the truth, and by browsing sites with a wide ranges of viewpoints I like to think I’m engaging my critical thinking skills more.


Our Collapsing Empire of Debt

July 29, 2008

For those of you who are still unclear about the economic situation in the USA, or for those of you who are looking for a one-stop site to show others, here’s a good one.

Charles Hugh Smith has a good blog post up right now titled “The Grand Summary: Our Empire of Debt is Collapsing.”   Mr. Smith’s post is a good, if depressing overview of our current quandary.  He paints a grim economic picture, and then ties in the coming effects of peak oil, which will only further exacerbate the issue.   Lots of charts help to illustrate his position.

Read the rest of this entry »


Socialism, American Style

July 26, 2008

Socialism has come to Wall Street, borne on the back of an elephant.  Nouriel Roubini writes:

“Tenth and final point, so what is left as the only solution is the outright formal or informal nationalization of the U.S. financial system. That effective and creeping nationalization is already underway with the variety of actions that the Fed and the U.S. Treasury have taken and that we described above. So this is the paradox of this U.S. administration: it was so rabidly and ideologically free-markets oriented and averse to any sensible regulation and supervision of the financial system that its policies of being asleep at the wheel caused the biggest asset bubble and credit bubble (not just in mortgages) in U.S. history. And now the unavoidable bust of this bubble is going to force an effective nationalization of a good chunk of the U.S. financial system as no one else but the government can do the job.
This is what the free-market ideologues at the Fed, Treasury and White House have now become – especially after the bailout of Fannie and Freddie’s shareholders, management and bondholders – Comrade Paulson, Comrade Bernanke and the Bolshevik Great Leader Bush. But then their whole approach and ideology has always been not one of free market capitalism but rather one of privatizing gains and socializing the losses; or socialism for Wall Street, the rich and the well connected. So they will now get what they deserve and worked so hard to achieve: a nationalization and bailout of the U.S. financial system.”

The original article is behind a paywall here.  I got this quote courtesy of the TickerForum, which is proving to be an interesting site for open-minded folks to find opinions & information about the true state of the markets.

Anyone who believes that only Democrats have socialist tendencies is fooling themselves.   The Republicans rail against too much welfare for the poor, but their actions prove they are all for it when it comes to large financial institutions and the elite.    Banks that are deemed “too large to fail” give themselves free reign to aggressively go after any sources of revenue they can, knowing full well that their paid lackeys in Washington will rescue them from their own greed.  Private profits, public bailouts.  Rich suits take home the bonuses, while you and I pay for their misdeeds.  Moral hazard be damned.

If you didn’t see this, the SEC Has recently passed emergency rules preventing ‘naked’ short selling against the stocks for a limited number of financial firms.   What is interesting is both the firms that are on the list as well as those that are not.  Goldman Sachs, JP Morgan, Citibank are among the protected, while some of that banks that are known to be in serious trouble (Wachovia, Washington Mutual) are not.    Some sacrificial lambs being offered up perhaps?  Or maybe a sign that those troubled banks are on the list to follow Bear Stearns in being absorbed by one of the protected giants?  We’ll have to wait and see…

There are a few politicians in both parties that are standing up to this bailout policy, but they are few & far between.   Both parties will do what they can to keep the status quo viable for as long as possible, and as a result they will be putting the financial screws to us and future generations.    Money talks in the US electoral process, so those with the cash are (and will continue in the future) to reap the most rewards.   The slow bifurcation of the USA continues.

With few exceptions US electoral races are two-party affairs, at least at the national level.  As long as both parties are financed by big business and the wealthy, ordinary citizens will have no real options to try and fix things.   We are sold either fear or hope, yet too often after the votes are tallied we seem to have bought business as usual.   As long as this persists, I don’t hold much hope that we will be able to change things for the better.


More Food Inflation Coming…

July 21, 2008

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July 20, 2008

Peak oil will spell the long-term death knell for the current definition of modern society.   We still have a few more years of bumbling along the ‘plateau,’ where supply & demand engage in an awkward waltz of sorts, with neither gaining the upper hand.  Eventually, though, supply will start slipping fast enough that new production cannot back-fill the resultant gap.  That’s when the economic vise will really start to tighten… assuming we don’t do something to screw things up before then.

Speaking of which, if you haven’t been paying attention recently, the financial excesses of the last few decades are finally starting to pay negative dividends at home.   Economic forces are playing whack-a-mole with US banks & GSE’s, and it’s getting harder to paper over the gaping holes in our economic fabric.   An article in the Economist has brought up an idea that months ago would have seemed ludicrous: that the USA may default on it’s debt.

The GSEs are not the only liability for the government. IndyMac’s recent collapse is the latest call on the Federal Deposit Insurance Corporation (FDIC). The FDIC has some $53 billion of assets, so it is better funded than most deposit-insurance schemes. But if enough banks got into trouble, the government would be on the hook for any shortfall. The same is true of the Pension Benefit Guaranty Corporation, which insures private sector benefits, but is already $14 billion in deficit.

In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt.

The US Dollar is the world’s reserve currency right now.  Most of the debt floating around the world is denominated in US dollars.  Were the dollar to become essentially worthless,  global fortunes would be wiped out, major economic havoc would take place in all of the world’s national economies, and the cost of all global commodities would skyrocket.

We’re not close to defaulting yet, but the fact that a major economic magazine like the Economist would discuss what previously was an unthinkable act should be a sobering alert to all of us.   We are entering a very dangerous period from an economic standpoint; one that could drastically alter the future for all of us.  Pay attention, folks.


The Frozen Economy

July 16, 2008

So much for me having more time to blog last weekend… my plans ran afoul of house chores & tending to children.  Ah well…

Good find courtesy of the Ticker Forum this morning on the “Frozen Economy.”   More & more folks are having to make ugly choices… food or fuel?  Heating bill or medicine?  Maybe only one of the four?  Many folks are scared to go out on a limb and do more than the bare minimum needed to get by.

2008 is shaping up to be a very, very interesting year.  The presidency is open, so both main candidates are trying their best to sell hope to a desperate American public.  How much of that hope turns out to be vaporware reamins to be seen.   It’s easy to talk a lot about solutions to big problems.  The hard part is actually figuring out how to implement and pay for them.

The theme of this years’ electoral race might as well be ‘failure.’  Major banks are failing; people are failing to retain their houses or pay their bills; Wall Street is failing to maintain stock prices; the Federal Reserve is failing to either keep inflation in check or the economy vibrant.   Our money is worth less; many major stocks are worth a lot less than they were a year or two ago; the economic bite of higher gas prices is only starting to trickle in to the consumer economy.

People are desperate for hope.  They will likely vote in anyone who will tell them they have a plan to fix things and bring us back to the go-go 90′s or whatever.   The major stumbling block is pain avoidance.   We have run up huge debts, both private & public.   The only ways to pay them off are to either inflate the debt away and vaporize the dollar (very unpopular with our foreign debt holders), or to get used to to idea of higher taxes, less services, and a lower standard of living (very unpopular with voters).    As Walter Mondale proved in 1984, telling Americans you’re going to promise to raise their taxes is a sure way to get one’s ass kicked in the general election.   Odds are very good that this will happen this time round, it’s just that the pols will obfuscate & avoid these questions during the campaign.

Voters have gotten used to the government helping themn in many ways without raising taxes… mostly this has been financed via debt.  The problem is that we’ve done this for such a long time that most buyers of that debt have more than they care to already… so what are we going to do?

That is a question that will be answered later this year, and then answered truthfully some time in 2009.


Happy Friday!

July 11, 2008

My beautiful bride has abandoned me this weekend to head out of town on a short-ish road trip.  So yours truly is playing Mr. mom at home watching the kids.    This will hopefully give me a little more time to blog this afternoon and over the weekend.

For the moment, though, I’m very interested in what’s going on in the markets this morning… Oil is up, the Dow is down, and both Fannie Mae and Freddie Mac are being drawn & quartered on Wall Street right now.  Anyone who thinks we are close to a bottom of either the housing market or the U.S. economic downturn must not be paying attention.   The government will bail out Fannie & Freddie if they have to (and it looks like they just might have to), and U.S. taxpayers will be left footing the bill.   Private profits but public bailouts appears to be the preferred method for helping large corporations through this mess.

Anyone who thinks that the USA doesn’t have socialist tendencies isn’t watching what’s happening in Manhattan these days.   We have no problem telling individuals who got themselves into a financial mess to stop crying for help and get themselves out of the hole they dug, but the large banks that recklessly chased bad paper over the last four years or so are ‘too large to be allowed to fail.‘     If only we could all follow that policy:  making extremely bad long-term decisions in pursuit of short-term profits knowing full well that the gub’mint will keep us from going under.

That’s all for now… the short boys on the Ticker Forum must be rubbing their hands with glee at all the bad news coming today.   When CNBC talking head Jim Cramer tells everyone to sell everything and either wait on the sidelines or start shorting, you know the economic outlook ain’t good.


IndyMac: Stock is essentially worthless

July 8, 2008

An update to yesterday’s story about IndyMac:

Beleaguered bank IndyMac has had its price target cut to $0 from $1 after the company said that second quarter losses will be bigger than the $900 million loss racked up in the first quarter. Analysts at Friedman Billings Ramsay are not saying that the company will fail per se, just that there is no value left for shareholders. The stock last traded at around 70 cents.

This glum view was also fueled by news that the bank will fire half its employees and that it has been unable to raise additional capital. According to a Bloomberg report, the California- based lender was told by regulators that it is no longer “well capitalized.” IndyMac was the second-largest independent U.S. mortgage lender last year after Countrywide Financial, now owned by Bank of America (BAC).

“The big problem is that no one will give them money. There’s too much risk involved and not enough value in their franchise,” Jason Arnold, an analyst at RBC Capital Markets, told Bloomberg.

link

Soooo… the company’s stock has cratered to the point that it looks to be worthless, yet the company won’t have failed.    Depends on your point of view… if I were a stockholder in IndyMac, I’d say it’s failed.

This won’t be the last major bank to approach the Wall Street confessional, folks.  There’s too much bad news churning around out there.  I have no idea which bank will be next, or when that will happen,  but there are other major holders of repackaged crap out there that will have to come clean sooner or later.   My unscientific rule is that the higher an interest rate a bank is advertising for savings accounts, the uglier their reserve position is.


IndyMac Going Down?

July 7, 2008

So I logged into work this morning, and the hot rumor floating around cyberspace is that IndyMac, one of (if not the) largest banks in Southern California either has been seized by Federal Regulators, or is very, very close to going under.  According to the always reliable (sarcasm) wikipedia, IndyMac is the 7th largest mortgage loan originator in the US, having doled out a good chunk of the toxic option-ARM loans, HELOCs, and other bad loans that have plagued the California real estate market over the last few years.

The problems at IndyMac aren’t coming out of the blue.  Senator Charles Schumer (D-NY) raised the possibility of problems at the bank a few weeks ago.   Maybe this is one of the ‘large financial institutions‘ Treasury Secretary Paulson was talking about last week?


“The orderly failure of a large complex financial institution.”

July 7, 2008

This should have been posted last week.. not sure what happened… probably just brain freeze on my end.

———–

US Treasury Secretary Hank Paulson is doing a fine job of buttressing global confidence in the US economy.

In an optimal system, market discipline effectively constrains risk because the regulatory structure is strong enough that a financial institution can fail without threatening the overall system. For market discipline to constrain risk effectively, financial institutions must be allowed to fail. Under optimal financial regulatory and financial system infrastructures, such a failure would not threaten the overall system.

To address the perception that some institutions are too big to fail, we must improve the tools at our disposal for facilitating the orderly failure of a large complex financial institution. As former Federal Reserve Chairman Greenspan often noted, the real issue is not that an institution is too big or too interconnected to fail, but that it is too big or interconnected to liquidate quickly.

There’s more in the speech, but that’s the bit that got people’s attention.  There have been rumors swirling for months around the financial health of a number of large US firms including Countrywide, Lehman Brothers, Wachovia, Washington Mutual, Citibank, and other large firms.   Mr. Paulson’s remarks tell me that he’s expecting at least one of these companies to go kaput some time relatively soon, and he’s sending up the warning that right now the Treasury & the Fed are ill-equipped to handle the fallout.

There’s been little but bad news flowing out of Wall Street recently.  Whether it’s automakers, home builders, or financial institutions, there seems to be an almost endless litany of woe emanating from lower Manhattan.   Mr. Paulson’s remarks only throw more gas on that fire if you ask me.

Stay tuned… and keep an eye on the health of the bank(s) you do business with.

HT:  Mish


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