The Naked and the Dead

Matt Taibbi has a great new article in Rolling Stone about Naked Short Selling and how it has been used & abused by the major Wall Street players for some time.  Good stuff and it illustrates a very complex situation clearly, which is a major benefit.

The way these major players manipulate and break the rules is breathtaking.  And the watchdogs haven’t gotten any smarter under the new occupants of 1600 Pennsylvania Ave either.  Considering that the major banks contributed heavily to both McCain and Obama in the last election cycle, this shouldn’t surprise anyone.   Despite the obvious damage being done to the economy at both the macro & micro levels from this white-collar form of pillaging, people aren’t being arrested and laws aren’t being changed at a very fast pace to try and stop this sort of thing from happening in the future.   Some ‘change,’ huh?

The American political process is sold to all of us as a left-right (or liberal-conservative) choice.   How much ‘choice’ do we really have when the same special interests are the major contributors to both viable candidates?

The Quiet Coup

Here’s a very good article written by the former chief economist for the International Monetary Fund dealing with how the US has been more or less captured by the financial elites while offering a way out of this mess.   It won’t be pleasant reading to many folks, seeing how the current US economic crisis neatly compares to past ones from countries we would make fun of in the past over their financial improprieties.  If you know people who still think we’ve hit the ‘bottom’ and that recovery is on the way, this article would be a good corrective.

Mr. Johnson’s proposed plan isn’t fun, but it sounds like it would provide the ‘come to Jesus’ moment that this country really needs to start clearing this mess off the books.  Naturally it’s therefore political dynamite to our two major political parties who thrive on donations from the financial sector.

The Quiet Coup

The Global Depression Scenario

I’ve been way too busy with work, family, etc. to do much original thinking about current events, so I’m passing on interesting things I find on other blogs.  In that vein, here’s a short piece by John Robb of Global Guerillas discussing how the ‘global depression’ scenario is becoming the most likely one in his thinking/modelling.

For my part, I’ve been reading and watching what President Obama and his economic team are proposing to do, and it seems very similar to what the last regime did.   Keeping the global money game going by sticking it to taxpayers does little to reduce the mountain of debt we are accumulating… all it does is shift the burden away from the bastards that did much to facilitate this crisis in the first place.    I’m starting to believe more in the line of thinking that the US may be screwed, but the rest of the world will be screwed even more than we are.   There aren’t enough euros, pounds, yuan, gold, or any other financial instrument in the world to soak up all of the trillions of dollars floating around out there.

How this all will shake out is beyond me, but eventually there will have to be a global reset of one sort or another.  Until that happens, it’ll be Groundhog Day redux… another month or two passes, and another round of bailouts is proposed… rinse and repeat.

The Coming Nationalization of the Big Banks

Interesting commentary at Jesse’s Cafe Americain this morning regarding when (not if) the major US banks will be nationalized.   While not naming names, the author indicates that the major problem is with the big banks (Citibank, Bank of America, Chase, etc.), and until those banks are truly inspected and cleaned out, we will continue throwing bad money after worse money.

The big banks will, of course, claim this will lead to economic armageddon, and it ,may do so for them personally I suppose.   Much like an overgrown forest, though, you need a big fire once in a while to clear out the dead wood and create the opportunities for new growth to take root.     Won’t be pretty or fun, but it is necessary.

CNN: Stocks will rise in 2009

This message brought to you by the good people at Goldman Sachs & JP Morgan, who thank you for your business and are busy shorting the phone book right now.

This strikes me more as wishful thinking than clear analysis.   The assumption is that the Obama stimuli will work and we’ll be back to business as usual.   I for one don’t see that happening over the long term.

Holding Back the Dam

I’ve added Jesse’s Cafe Americain to the blogroll… another excellent site for in-depth financial commentary that you’d have a hard time finding in the mainstream media.

The latest post is quite good, in which the author describes his increasing belief that there will be a hyperinflation event in the USA at some point.

A choice quote:

That has now changed. The dollar is a Ponzi scheme, the waters of debt are overflowing the dam of artificial support, and only a few countries, two of them somewhat unstable, are holding back the deluge.

If this comes to pass, we may all pay off our credit card bills and mortgages in record time yet still have trouble paying for food.

For a picture of what a hyperinflation might look like, check out these pictures from Zimbabwe covering the last year or so.

If something like this comes to pass, having basic sustainable living skills like gardening, mending clothing, etc. will become more valuable than ever.  As Steve Solomon states in his book, being able to grow one’s own vegetables can be the difference between barely surviving and maintaining good health.   I for one plan to make it a goal to get a few square foot gardens in this spring, and to start learning how to save seeds.

Zero

The Federal Reserve just fired the last bullet with regards to interest rates.  Cutting the Federal Funds Rate to a “range from 0% to 0.25%”

If this fails to sufficiently motivate the markets, what’s next?  Here’s a hint:

As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

“Agency Debt” refers to securities issued from government agencies like Fannie Mae, Freddie Mac, Sally Mae, etc.

Long story short, the plan is to buy as much crap as they feel they need to to try and jump start the credit markets and re-inflate the economy.  The last sentence refers, I believe, to some reports that the Fed was looking at issuing it’s own debt to compete with Treasury bonds.   Many pundits agree that it’s a bad idea, but you never know.  The government hasn’t been acting rationally for a while now in this mess.

I have been considering refinancing my home to take advantage of lower interest rates but have held off.   With the funds rate approaching zero, I think that we may very well see the 4.5% mortgages for everyone that some people are reporting the Obama administration is working on.  My house has lost a lot of the equity I put into it when I bought it a few years back (bad timing on my part, I know), and I’m hardly alone in that.   I read rumors about slashed interest rates and adjusted loan balances to reflect lost equity.   Will it happen?  Possibly, though the cost would be astronomical.

We have loaned a crapload of money to banks, and all they have done with it is pay executive bonuses, buy up other troubled banks, and for the most part, simply stick the funds in the vault and sit on them.   Both the Fed and the incoming Obama administration have signalled that they are going to hose everyone down with fiat currency in some form of Keynesian fantasy to jumpstart the economy.   We are supporting bad business models, bad decisions, and greed by socializing financial losses for many (but not all) big corporations.    We are attempting to climb out from under a huge pile of debt by adding even more debt on top of that.

When will it end?   How will we EVER be able to pay this debt off?

LOL…Sorta…

This video is hilarious, in a make you hold your head in your hands kind of way.   I agree with Fred… more spending is only going to put off the day of reckoning so long.   Teach your kids the finer points of debt management now, for they’re all going to get a lot of it to pay off in the future.

Money quote: “This holiday season, be extra nice to the kids. Bless their hearts they have no idea what’s in store for them.”

Fred Thompson was almost operating like he was in a coma during his run for the presidency.   He must have gotten a second wind now that he’s in no danger of having to provide solutions.   People may not agree with his politics (I certainly didn’t on a number of subjects), but here I think he’s spelling things out pretty clearly… oh, and both parties will be responsible for the economic bloodshed that’s coming.

HT:  Ticker Forum

Low Gasoline Prices… Now and in the Future

Fascinating article by Gail the Actuary at The Oil Drum concerning where gasoline prices are now, and where they are going in the future.  The comments for this article are especially good.

One point that jumped out at me is that a lot of economic pundits are writing articles and theorizing timelines based on when they feel the markets will truly ‘correct’ and be able to move forward again.  This article posits the idea that the markets  are so debt-ridden that they may never truly be able to correct.

The US government has thrown a lot of cash at the banks, the GSE’s, insurers, and practically everyone else except homeowners who played by the rules and only bought what they truly could afford.   The incoming Obama administration is promising to throw even more cash at things to try and get things moving again.  This ‘cash’ is really just more debt we are throwing on top of a massive mountain of debt we already are burdened with.  While this additional debt may provide a short-term jump-start to the economy, in the long run it’s just adding to the bill current and future generations will have to try to pay off… or not.

The current unwinding of debt that is starting now will probably not end for a while… when will we reach the point where the low energy prices will start killing off energy companies, and what will that mean for the country?    How many homes in the Northeast will be uninhabitable if there are no companies to deliver heating oil?  If natural gas prices crash to the point wellheads and pipelines shut down, what would that mean to millions of homes across Canada and the northern USA?  These are interesting questions that few people have thought about while we’re enjoying much lower gas prices.

Looming Trade War with China?

It appears that China is slowly starting to devalue the yuan in an attempt keep it’s export economy humming along.     As the article notes, the Chinese are behind the 8 ball to a certain degree.  If they devalue their currency enough to make a difference, it could trigger even more deflation around the world, pissing off both their neighbors and their trade partners (read: the USA, among others).   If they don’t the internal rioting and strife affecting inland China right now will only continue to worsen.

So, the Chinese are looking to make the best of a bad situation and are trying to save their own bacon… which is exactly what we’ve been trying to do as well with regards to our financial woes.     The actions they take to try and make their situation better ends up making ours worse.  One possible result?  A new trade war.

For those into economic bear porn, the Ticker Forum has a nice long thread filled with both insight and angst over this new situation.  The consensus among the financial bears there is that this is a “very bad thing” and will only get worse if tariffs and new trade laws get thrown up.  Like it or not, we rely on China for both ample supplies of cheap manufactured crap and their ability and willingness to buy up boatloads of Treasury debt.   A new trade war could lower both the inflow (goods) and outflow (bonds) of crap from here.

News like this just reinforces the feeling I have that the economic fun times are just getting going now.   With the economy visibly slowing down, possible bankruptcy for the big auto manufacturers, more financial implosions, falling tax revenues, rising entitlements and other obligations, and a possible run on the US dollar, 2009 is going to be interesting in a bad way.